Public Authorities (Fraud, Error and Recovery) Bill
Monday 3rd February 2025
(1 month ago)
Commons ChamberPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text Watch Debate Read Debate Ministerial Extracts
20:50 - The House divided: - Ayes: 343 / Noes: 87 - Question accordingly agreed to.
Madam Deputy Speaker (Caroline Nokes)
The reasoned amendment has not been selected.
The Secretary of State for Work and Pensions (Liz Kendall)
I beg to move, That the Bill be now read a Second time.
This Bill will help deliver the biggest ever crackdown on fraud against the public purse, which has now reached an astonishing £55 billion a year. That includes fraud against our public services, such as by those who abuse the tax system; fraud by dishonest companies that use deception to win public contracts and manipulate invoices; and benefit fraud by criminal gangs and individuals, which now stands at a staggering £7.4 billion a year.
There have always been people who commit fraud against the state—tragically, this is not a new problem—but at a time when families across the country are working so hard to pay their bills and put food on the table, when more than 7 million people are stuck in pain and discomfort on NHS waiting lists, and when a shameful 4.3 million children in Britain are growing up poor, it is simply unforgiveable that the Conservatives allowed fraud to spiral out of control. During their 14 long years in government, they failed to put in place a proper plan to crack down on fraud, and there is no better symbol of this than their failure to update the powers of the Department for Work and Pensions to properly crack down on benefit fraud. Just let that sink in for a moment.
Over the last decade, fraudsters have become increasingly sophisticated in the techniques that they use to steal people’s money, using data, technology and all manner of scams. In response, banks and other companies have transformed their ability to spot and stop fraud, and to protect their customers’ money, but the last Government completely failed to do the same for taxpayers. In all their time in power, and with all the developments in technology and the ability to share data and information, they failed to update the DWP’s powers. The Conservatives will no doubt claim that they did introduce measures, but, in truth, they put forward one poorly thought-through measure that was tagged on to another Bill at the tail end of the last Parliament, without any of the proper safeguards or oversight in place. Today, all that changes with our new fraud Bill.
This Bill is tough and it is fair. It is tough on the large companies and dodgy businessmen who try to defraud our public services, it is tough on the criminal gangs and individuals who cheat the benefit system, and it is fair to claimants who make genuine mistakes, by helping us to spot and prevent errors earlier. Taxpayers deserve to know that every single pound of their hard-earned money is being spent wisely and that benefits are there only for those who need them, not fraudsters who take advantage.
Richard Burgon (Leeds East) (Ind)
The Secretary of State is absolutely correct to say that we need to pursue criminal gangs that are engaged in widespread organised theft. I put a written question to the Department for Work and Pensions to ask about the amount lost through personal independence payment fraud, and I was told that only 0.2% of such claims were fraudulent in 2022-23. Does the Secretary of State agree that as we pursue organised criminal gangs, it is really important that we make it clear that there cannot be a hostile approach to disabled people claiming PIP or disabled people more widely who are using the benefits system as they deserve to?
Liz Kendall
People who are genuinely entitled to claim benefits have nothing to worry about from this Bill, but we believe that the £7.4 billion wasted every year through benefit fraud must be cracked down on.
To the corrupt companies with their dodgy covid contracts, to the organised criminal gangs and to every single individual knowingly cheating the system, our message today is clear: we will find you, we will stop you and we will get our money back.
Jim Shannon (Strangford) (DUP)
No one denies that there are those who are blatantly cheating the system, as I referred to in my oral question to the Secretary of State earlier today. On her point about fair play, however, can she give an assurance to me and to the House? I am concerned that if officials in the Department seek out low-hanging fruit, people who have a genuine disability could be denied their rights. I am concerned about the anxiety, the depression and the physical effects that that might cause.
Liz Kendall
Actually, the Bill will do the precise opposite. Through the measures relating to the Public Sector Fraud Authority, we are saying to the large companies and corporations and to the individuals cheating, “We will treat you equally. We do not allow fraud against the public purse. We want to stop it and get our money back.”
Several hon. Members rose—
Liz Kendall
I will make a bit of progress.
I want to start by setting out the measures in the Bill that give the Public Sector Fraud Authority the powers that it needs—further to the point that the hon. Member for Strangford (Jim Shannon) rightly raised—to fight modern fraud across the public sector on behalf of Government Departments and public bodies.
Liz Kendall
I will set this out first. The Bill will provide the authority with new powers to obtain search warrants, to enter premises and seize evidence as part of fraud investigations, to compel businesses and individuals to provide information where there is a suspicion of fraud, and to enable it to better detect and prevent payments made as a result of fraud or error. It will also bring in new debt recovery powers, so that we can get public money back for taxpayers, and new financial penalties that the PSFA can use as an alternative to often lengthy criminal prosecutions.
What happened during the pandemic was completely unacceptable, with billions of pounds squandered by the Conservatives on dodgy deals with their covid cronies. This Bill will help us to get that money back. It will double from six to 12 years the time limit for civil claims to be brought in alleged cases of covid fraud, giving the PSFA and our new covid counter-fraud commissioner more time to investigate complex cases relating to those who exploited a national emergency for personal profit.
Dame Meg Hillier (Hackney South and Shoreditch) (Lab/Co-op)
I have spent more than a decade studying fraud and error in the DWP. The Secretary of State is right that levels of fraud have been intransigently high, but my concern is about where there are errors. Quite often, they are made by the Department. My constituent received a £5,000 overpayment. Will the Secretary of State make it clear to the House that people in that situation will not have money taken out of their bank account, and that they will be treated properly if there is a small error on their side or a big error by the Department?
Liz Kendall
I will come on to that point in a moment, but I have the utmost respect for my hon. Friend. In fact, I think that the measures in the Bill will help us to spot such errors and prevent them from happening in the first place. People make genuine mistakes. We do not want them to build up errors and build up debt that they have to repay. I think that the Bill is part of solving that problem. I will say more about that in a moment.
I turn to fraud and error specifically in our welfare system. The Bill will modernise and extend the DWP’s anti-fraud powers, bringing it into line with other bodies such as His Majesty’s Revenue and Customs, so that we can use technology and data to find and prevent fraud more quickly and effectively; so that our serious and organised counter-fraud investigators have the powers they need to search premises and seize evidence, including from criminal gangs, and bring offenders to justice; and so that we can ensure that when people owe us money and, crucially, when they can pay, we get that money back for taxpayers. That all comes with strong and new safeguards and with independent oversight on the face of the Bill, as I will set out in detail.
David Pinto-Duschinsky (Hendon) (Lab)
As my right hon. Friend mentioned, the Conservatives did not do much on this issue except tagging on a Bill at the very end of their tenure. The Information Commissioner’s Office was very critical of the approach taken in that fraud Bill. Can she reassure the House that she has addressed those concerns?
Liz Kendall
I can indeed reassure the House. The Information Commissioner was rightly critical of the last measure introduced by the Conservatives—the third-party data measure. He has written to us today, and we will make sure that his letter is published. He says that he has reviewed our proposals and is very clear that the current measure more tightly scopes the type of information that can and cannot be shared; specifies much more clearly those in the power’s scope; requires a statutory code of practice before measures are taken; and includes a requirement for the Secretary of State to appoint an independent person to carry out reviews of these functions. I am more than happy to publish that and share it with the House, because I think it shows the changes this Government are making.
We are serious about getting these measures through. We understand people’s concerns, and we have addressed them. The Information Commissioner’s letter should reassure the House.
Andy McDonald (Middlesbrough and Thornaby East) (Lab)
My right hon. Friend has the House’s wholehearted support in pursuing the recovery of funds taken by fraud and error. The National Audit Office estimates that, in the last financial year, £39 billion of tax revenue was not received due to fraud and error, compared with £7 billion in overpaid benefits classed as fraud, which we want to pursue. Can she reassure the House that an appropriate level of resources will be targeted at recovering this large sum of money, which will bring better dividends back to the Treasury?
Liz Kendall
My hon. Friend is right to raise this issue, which he knows the Chancellor and the Treasury team are looking at seriously. The clear message from this Government is, “If you are getting money to which you are not entitled or owe money to the taxpayer through either unpaid taxes or fraud, that is wrong.” We treat everything the same, large or small. We believe in our public services and our social security system, and we want people to know that every single penny of their money is wisely spent and goes to those in the greatest need.
Rachel Gilmour (Tiverton and Minehead) (LD)
As a Member of the party that introduced the state pension, I am behind the Government on this Bill because we all want to cut down on tax fraud and evasion. But I am concerned that pensioners are included under this blanket of Government scrutiny, and it seems that the only thing they have done to deserve it is to get a bit old.
Liz Kendall
One of the new measures introduced by the Bill, the eligibility verification measure, explicitly excludes the state pension. I reassure the hon. Lady on that point.
Shaun Davies (Telford) (Lab)
In places like Telford, it is a basic principle that people pay into the system and then take out of the system, or their neighbours do, when they are in need. The companies and individuals that are defrauding national benefits are often also defrauding local authority benefits and schemes. Will we extend these powers so that local government is able to work with national Government to pursue this fraud?
Liz Kendall
I reassure my hon. Friend that local authorities will be able to put examples to the Public Sector Fraud Authority for scrutiny. The new powers introduced by the Bill will enable the PSFA to crack down on precisely those issues.
Liz Kendall
I will crack on a little, and then I will be happy to take an intervention.
I will now spell out each of the Bill’s measures in turn. First, there are powers to investigate potential fraud. The Bill will mean that, for the first time, the DWP’s serious and organised crime investigators will be able to apply to a court for a warrant to enter and search the premises of suspected fraudsters and criminal gangs to seize items for evidence, such as computers and phones. At the moment, our investigators have to rely on the police to do this. The Bill will enable us to act much more quickly to gather evidence, to take control of and speed up investigations, while also freeing up police time. These powers will be used only when approved by the courts, and the police will continue to be responsible for arresting suspects.
Secondly, the Bill will update the DWP’s information-gathering powers for investigating fraud. At the moment, we have the power to require information from only a limited list of third parties. This does not include key organisations and sectors that could help to prove or disprove suspected fraud, such as airlines.
To add to that, there is limited ability to require responses to requests to be sent electronically. Instead, quite unbelievably, they have to be sent in writing or physically collected, which is time consuming and cumbersome, to say the least. That limitation on our powers completely underlines how the changes in the Bill are long overdue, and the lack of action by the previous Government. The Bill widens who the DWP can compel information from, and it will enable us to require the information to be provided digitally by default.
Thirdly, our new eligibility verification measure will enable us to require banks or other financial institutions to provide crucial data to help identify incorrect benefit payments people might be getting, including fraudulently, such as if someone has too much in savings, making them ineligible for a benefit, or if they are fraudulently claiming benefits abroad when they should be living in the UK. People should not be getting benefits they are not entitled to, and the alerts will make the process of identifying potential fraudsters much simpler, quicker and easier.
However, we know that people lead busy lives and sometimes genuine mistakes happen. The measure will help there too, by finding and putting errors right quickly, preventing people from building up large debts that they then need to repay. I am absolutely determined to reduce benefit mistakes by stopping them from happening in the first place and to avoid debts building up, with all the worry and distress that causes. That is why I have launched the independent investigation into the overpayment of carer’s allowance, in order to learn lessons about what went wrong and ensure that does not happen again.
I want to stress to the House that, under our eligibility verification measure, the DWP will not be able to access people’s bank accounts or look at what they are spending. We will not share any personal information with banks. Once an alert has been issued, any final decision about someone’s benefits will always be taken by a human being and the state pension will be excluded from the measure. There will also be independent oversight of the power on the face of the Bill, with the requirement to produce reports and lay them before Parliament, which I will say more about in a moment.
Sammy Wilson (East Antrim) (DUP)
The Minister is outlining the actions she intends to take to ensure that errors do not happen and that humans will conduct any reviews. However, once a decision has been made—whether the error was genuine or not, the person should not have received the money—the Bill sets out that the person is still subject to all the measures that would be imposed on people who have deliberately engaged in fraud. That is the real worry. Despite the Secretary of State’s assurances, errors will still be made. Judgments will have to be made about whether the money, given in error, is recoverable, and if it is recoverable, it will be treated as if that were fraud.
Liz Kendall
No, it will not be treated in the same way. There is much more we can do to use technology to prevent genuine mistakes and errors building up in the first place, but we also have to use all the technology and information-sharing abilities we have to crack down on fraudsters who will use anything they can to try to defraud the system. I will come to the wider safeguards in the Bill towards the end of my speech, but my hon. Friend the Minister for Transformation and I will be more than happy to talk to the right hon. Gentleman in more detail about any other concerns he may have.
Ben Maguire
I am interested to hear about the measures in the Bill relating to local authorities and public authorities. Has the Secretary of State considered expanding remit of the Public Sector Fraud Authority to investigate cases of serious mismanagement of funds by local authorities, such as the recent botched sale of Newquay airport by Conservative-controlled Cornwall council, which reportedly cost Cornish taxpayers over £1 million in consultancy fees and the like?
Liz Kendall
The hon. Gentleman has made his point simply and clearly. The Bill is about tackling fraud and people who have defrauded the public purse. I am sure his local newspaper will write his comments up very clearly.
The fourth chapter of part 2 of the Bill is about widening our ability to punish fraudsters using a financial penalty as an alternative to seeking prosecutions. At the moment, we can issue financial penalties only in cases of benefit fraud. The Bill extends our ability to use them in cases of fraud against any type of DWP payment—for example, if we had any future scheme like the kickstart employment scheme. That will ensure that more fraudsters committing a wider range of fraud can be dealt with swiftly without going to court.
Last but not least, the Bill gives the DWP more power to get back public money that someone owes in cases where they can repay it but repeatedly refuse to do so. This power does not cover people on benefits or in payrolled employment, because money can already be recovered through the social security or pay-as-you-earn systems, but for people who have moved off benefits and are not on PAYE—for example, because they are self-employed or now living off savings—the Bill will enable the DWP to request the bank statements of people we know owe us money but who have repeatedly refused to engage with us, to verify that they have sufficient funds to repay. We can then recover the money from their bank account through either a one-off lump sum or regular deductions. That will be done in a fair and manageable way, with time for the person to make any representations and the right to appeal.
As a last resort, if someone owes us more than £1,000 and continues to repeatedly refuse to engage with us and agree how they will pay the money back, we can go to court and get an order to disqualify that person from driving for up to two years. This is the same power that the Child Maintenance Service has been able to use for the last 25 years in cases where a parent repeatedly refuses to make payments to support their child. In considering a disqualification order, a court will always check whether the person needs a driving licence for work, because taking it away would be totally counterproductive if they do, and look at other reasons why a license may be essential, such as if the person is disabled or a carer. The measure is for people who have repeatedly refused to engage with the system. It is an important power that the DWP should have to bring people to the table for a discussion about how they will repay the money that they owe. We are clear that someone keeping public money to which they are not entitled is serious, and will result in serious consequences.
Ben Lake (Ceredigion Preseli) (PC)
I am grateful to the Secretary of State for outlining some of the Government’s thinking behind clause 91. Will she elaborate on whether the Government have considered the fact that such a disqualification would have a disproportionate impact on somebody living in a remote area, compared with those in more urban areas, where there is much greater access to public transport?
Liz Kendall
As I said, the court will always look at whether the person needs a car for their job, but we cannot say that people are allowed to get away with fraud in different parts of the country. This is about getting money back. The measure is for people who have repeatedly refused to engage with us, and who we know have the money to repay what they owe. We can bring them to the table and have a discussion about that repayment. I think that most members of the public would think that that is totally reasonable and fair, and that is the new power that we will have.
Let me turn to the strong new safeguarding measures in the Bill. First, as I have said, there will be independent oversight in the Bill for the eligibility verification measure, and new powers for the DWP and the Public Sector Fraud Authority to investigate fraud. I will appoint an independent person to oversee how the EVM is being used and its effectiveness. The Parliamentary Secretary, Cabinet Office, my hon. Friend the Member for Queen’s Park and Maida Vale (Georgia Gould), will also appoint an independent person to review the use of the PSFA measures. Both will be required to provide reports to the Government, which will be published and laid before Parliament. His Majesty’s Inspectorate of Constabulary and Fire & Rescue Services will oversee the investigation powers of the DWP and the Public Sector Fraud Authority. Any complaints about the use of the new search and seizure powers in the Bill will be referred to the Independent Office for Police Conduct.
Kirsty Blackman (Aberdeen North) (SNP)
This is a genuine question on the power to request information: will the DWP be able to request information from charitable organisations that are perhaps providing support to people, or from Members of Parliament, who may be providing support to constituents who come through our door?
Liz Kendall
The eligibility verification measure is for banks and financial institutions. It has been tightly defined, which is one of the reasons the Information Commissioner has written his response now. The last Conservative Government just referred to third-party data. That was not a serious proposal, narrowly defined with proper independent oversight. We want the legislation to pass and be used proportionately and effectively. That is why we have included the proposals as drafted.
The second important point is that there will be a statutory code of practice on how the powers can be applied, which we will consult on during the passage of the Bill, to clearly define the scope and limitations. Thirdly, there will always be vulnerability checks for each individual under the new debt recovery powers to ensure that people are not forced to pay back money that they cannot afford. Last, but by no means least, final decisions affecting benefit entitlement will always be made by a human being. Those decisions will sit alongside the right to reviews and appeals—no ifs, no buts. Put together, I believe that those new safeguards will provide the reassurance that the public and some Members of this House need that the Bill’s powers are proportionate, safe and fair.
The Bill delivers the biggest upgrade to the DWP’s anti-fraud powers in more than 14 years. It brings in new powers to tackle fraud right across the public sector by empowering the Public Sector Fraud Authority, and not before time. Our approach is tough but fair: tough on criminals who cheat the system and steal from taxpayers; tough on people who refuse to pay back money; fair on claimants, by spotting and stopping errors earlier, helping to avoid people getting into debt; fair on those who play by the rules and rely on the social security system; and fair on taxpayers, by ensuring that every pound is spent wisely, responsibly and effectively on those who need it. We were elected on a mandate for change, and that is what the Bill will deliver.
Madam Deputy Speaker (Caroline Nokes)
I call the shadow Secretary of State.
Helen Whately (Faversham and Mid Kent) (Con)
A strongly held Conservative principle is that public money must not be wasted. We hold this view not because we are mean, but because the Government do not have money of their own. What they have, they raise through taxation from all of us. A tiny fraction of every penny that they spend is yours, mine and everyone else’s who pays in. Those who spend public money have a duty to spend it wisely, and ensure that it ends up only with those who should have it, for the purpose for which it was intended. In a big, complex system of government in a country of nearly 70 million people, from time to time that will not happen for a range of reasons—from a form that has been accidentally filled in with the wrong information, or a change of circumstance that someone forgot to notify the jobcentre about, to serious organised fraud—but however taxpayers have lost out, it is incumbent on the state to do all that it can to get their money back. That is what taxpayers rightly expect. It is part of the unwritten contract for collecting that money in the first place. Therefore, it will be no surprise to hear that, in principle, we support the Bill’s aim. In fact, much of the Bill continues work that we did in government, and legislation that was interrupted by the election.
It is important to put what we are discussing today in context. Before the pandemic, fraud and error across the DWP benefits and tax credit system was at a near record low, but then we had two national crises—first, the pandemic, then war in Ukraine—which piled huge cost of living pressures on families across the UK. During both, we acted rapidly. We set up never-seen-before systems of support in record time. We protected millions of people’s jobs. We paid half of everyone’s energy bills for a year. We got direct payments to the people who needed them the most. I am proud of what we did, and I think that history will look back kindly on how we supported people through those times, but the truth is that when we do something fast at a moment of crisis, that inevitably opens up new vulnerabilities in the system. Disappointingly, against a national spirit of getting through hard times together, some people saw it as a chance to make a quick buck, and we saw a material increase in the amount being lost to fraud within the system. Any and all of us could spell out better uses for that money. That is why, back in May 2022, we published our plan, “Fighting Fraud in the Welfare System”. We increased the number of frontline counter-fraud professionals in the DWP, created a new Public Sector Fraud Authority and started work on new legal powers to investigate and punish fraudsters. It was a good start. In 2022-23, fraud and error were cut by 10%. We saved £1 billion through the Department’s dedicated counter-fraud activities. The next year we upped that to £1.35 billion, exceeding the £1.3 billion target, yet we were still not satisfied.
In May last year, we published a second fraud plan to save £9 billion by 2027-28, which included hiring more staff to check claims for accuracy, modernising information-gathering powers, broadening the penalty system and investing £70 million in advanced data analytics. In April, we announced plans for a new fraud Bill to align DWP investigations with HMRC, treating benefit fraud like tax fraud and giving investigators new powers to make seizures and arrests. When the general election was called, the Data Protection and Digital Information Bill had already passed through the House of Commons. The Bill included the powers the Government are introducing today to require third parties, such as banks, to provide relevant information to the DWP. To the extent that this Bill continues that work, I do not envisage substantial disagreement—albeit we have questions on how the law will work in practice. I also have serious concerns about the powers that the Cabinet Office is giving itself.
Before I deal with those, let me say that I recognise the concerns that people have about the state getting too much information about their finances. Privacy should never be taken lightly. I do not want to live in a country where the Government can access our bank accounts and look at what we have been spending our money on, and I would not support a Bill that would allow the Government to do that, but I believe that it is right for the DWP to learn lessons from HMRC to recoup taxpayers’ money. The fact of the matter is that if someone receives money from the state, it is not unreasonable for the state to investigate if there are signs they are taking money that they should not be.
As I said, I have some questions about how the social security powers in the Bill will be put into practice, and I expect to probe those matters further as the Bill progresses. For instance, on the role of banks, how much testing has been done of the systems that they expect to use? The Horizon scandal is a recent reminder of how computer systems do not always get it right. What progress has been made on the code of conduct, and when will we see it? I also note that no impact assessment has been done on the cost to banks. Has the Minister met the sector and discussed what the changes mean for it? I know there are concerns within the sector about the lack of detail brought forward by the DWP. If the maximum level of scrutiny allowed under the Bill is demanded by the DWP, how would that work in practice for banks and what would it cost?
On the sanctions that can be meted out under the Bill, we support the Department for Work and Pensions being given further powers to pursue recovery outside of benefits and PAYE, but are the measures outlined in the Bill tough enough? Why is 40% the maximum amount of someone’s capital that can be reclaimed? Allowing for hardship, which the Bill does, why should someone potentially keep the majority of their ill-gotten gains?
It is not clear how the Bill intends to treat carer’s allowance overpayments, which I know from my time as Care Minister are complicated and often accidental, though unfortunately not always. None the less, they are a loss to the taxpayer that should be investigated. We would like to understand in more detail how the savings we are told to expect from the Bill will accrue. How many people does the Government think that will affect, and what proportion is it of the fraud currently being perpetrated? I was concerned the other day to see reports in the media of a number of artificial intelligence schemes being quietly shelved in the Department. It is noticeable that the plans rely heavily on human labour to root out fraud. While I know the Government have to create jobs somehow, I would be interested to hear what consideration has been given to automating some of the processes in future. That too will help ensure that taxpayers’ money does not go to waste.
I come to my main area of concern, which is the powers being given to Cabinet Office Ministers and the Public Sector Fraud Authority. I know what it is like to make legislation thinking that I, as a good person, would only use it wisely, but I also know what it is like to be wrongly investigated by a public authority on the grounds of a misleading newspaper article. Looking at the investigatory powers bestowed in chapter 2 of the Bill, how could one not be worried to see a Minister being given powers, with little oversight, to compel a person to release whatever information they wish, in any format demanded, within 10 days, along with the information of anyone connected to them, on any grounds that the Minister deems “reasonable”—and to disclose that information to whomever they think necessary, with the sole right of appeal being only to that Minister? It could be impossible for someone to comply within the timeframe given, yet the Bill includes fines set at £300 a day for missing the deadline.
Of course the Government should go after fraudsters, but I worry that some of that power could be abused and that, in its current form, it may breach laws on the state taking someone’s property without due process. I would be interested to hear if experts in the legal sector have been consulted on the legislation as drafted. Have Ministers engaged with the Law Society, the Bar Council or, for that matter, organisations like Liberty and Justice?
In the Department for Work and Pensions and the Cabinet Office, it is right to pursue fraudsters with the full might of the law, but the ends cannot justify all means and the process must always be fair, reasonable and proportionate. I look forward to further discussions on the detail of the Bill, and I am sure that colleagues in the other place will be preparing for that, too.
In the meantime, we must not let the Bill distract from the elephant in the room. For every penny the Bill will save—welcome though that is—it will do nothing about the billions of pounds that will be racked up in sickness benefits under this Labour Government. It is staggering that they did not come into office with a plan. They have done nothing to halt the tide in the seven months they have been in office, and I hear that they have shelved some of the work we handed over. We have heard not a murmur about what they will actually do, just briefing after briefing to the papers. Why not bring an actual plan to Parliament rather than talking to the papers? I suspect you, Madam Deputy Speaker, might agree with me on that point.
We had a plan—where is theirs? Every day the Government scramble about without a plan costs taxpayers millions. Fraud and error in the system is a problem, and I am pleased to pledge the Opposition’s support for tackling them, but let us not use this Bill as a distraction from the big issue. We all agree that the welfare system needs reform. Let us end the briefings and have some action.
Madam Deputy Speaker (Caroline Nokes)
Before I call the next speaker, I just want to make it clear that after the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), I will call the Liberal Democrat spokesman, the hon. Member for Torbay (Steve Darling).
Debbie Abrahams (Oldham East and Saddleworth) (Lab)
It is absolutely right that fraud against the taxpayer, whoever it is by, is detected, that money is recovered and that future fraud is prevented. We saw fraud during covid when, for example, the abuse of the bounce back loan scheme cost the taxpayer nearly £5.5 billion. There was also covid-related contract fraud, such as the purchasing of unusable personal protective equipment, which was outrageous.
As my right hon. Friend the Member for Leicester West (Liz Kendall) mentioned, the National Audit Office identified six areas of fraud risk against the public sector, estimated to cost the taxpayer between £55 billion and £85 billion. They are grant fraud, which is the misappropriation or misuse of grant money; service user fraud, which we have focused on today; procurement and commercial fraud; income evasion; internal fraud and corruption; and regulatory fraud.
In its 2023-24 annual report and accounts, the DWP estimated that it made overpayments—including fraud and error—of £9.7 billion out of the £269 billion that it spent. That is 6.7% of related expenditure. However, it also made underpayments of £4.2 billion—that is 1.6% of related expenditure—up from £3.5 billion the previous year, because of underpayments of disability living allowance. Within that, there were different levels of fraud for different benefit types. For universal credit, the level of overpayment for the same period is 13.2%. That is down from a peak of 21% in early 2020, during the covid pandemic, when some of the controls were suspended to speed up the application process. In fact, by value, two thirds of all overpayments are on universal credit—£6.5 billion out of £9.7 billion.
The DWP has tried to argue that the increase in fraud in the social security system reflects an increase in fraudulent behaviour in society. However, that does not explain why the overpayments are concentrated in universal credit accounts, or why, for example, there was a 10% reduction in fraud incidents reported in the crime survey for England and Wales between 2023 and 2024. The National Audit Office and Public Accounts Committee agree. In its recent report on the DWP’s annual accounts, the PAC said that it was not convinced by the DWP’s claims, adding that that was a “dangerous mindset”. The Committee also produced the following context, which we should all consider:
“It is concerning that DWP is not providing a decent service to all its customers, who include some of the most vulnerable in society and some of those with the most complex needs. In particular, claimants of disability benefits, including Personal Independence Payment (PIP) and Employment and Support Allowance (ESA), are receiving an unacceptably poor service including processing times compared with those receiving Universal Credit (UC) and State Pension.”
I worry that many of those disabled claimants, made vulnerable by their circumstances, are receiving less than the DWP estimates that they are entitled to. I believe that there is a genuine commitment from Ministers to change the DWP’s culture and build trust with its service users, but the Bill will be seen by many as more evidence not to trust the DWP and not to engage. I am not alone in that; in evidence to the Work and Pensions Committee inquiry on safeguarding vulnerable claimants, Citizens Advice raised concerns that the failure to engage is the second largest category that the DWP classes as fraud, and that when the enhanced review team identifies a household as having potentially made a fraudulent claim, payments may be immediately suspended. Citizens Advice recommended that the detriment caused by such a suspension should not take place while the fraud review process is ongoing. Disability Rights UK, UK Finance and others have raised concerns about the lack of systemic safeguards in the Bill. To their credit, Ministers have accepted that and will look at it as a whole.
However, Ministers—particularly those from the last Conservative Government—will remember the housing benefit fraud allegations, in which more than 200,000 people were wrongly accused of and investigated for housing benefit fraud and error last June. An AI algorithm—which the shadow Secretary of State, the hon. Member for Faversham and Mid Kent (Helen Whately), just said we should be using more of—incorrectly identified people as potentially behaving fraudulently, and they were investigated. That is really serious. What level of investigation of innocent people do Ministers consider acceptable?
Policy in Practice has also raised concerns about underclaiming, barriers to accessing support, the lack of value for money of the DWP’s fraud detection, prevention and recovery system, which addresses less than 5% of the debt owed, and how the focus on fraudulent claims is
“spoiling the system for the 97% of ‘genuine’ benefit claims”,
fuelling beliefs about benefit cheats, and detracting from
“the millions of households that are rightfully and legitimately supported by a social safety net designed to be there for all of us when we need it.”
I have questions for the Ministers, some of which I have raised with them before. What risk assessments of the Bill have been undertaken? I know that there is an impact assessment and a human rights assessment. What are the risks, what mitigations have been put in place, and will the Government publish them? How are safeguarding concerns, including the Caldicott principles and the responsibilities of the Caldicott guardian—which the DWP has, to its credit, now put in place—addressed in the Bill? This Bill is too important for us to mess it up and for innocent people to become the victims.
Madam Deputy Speaker (Caroline Nokes)
I call the Liberal Democrat spokesperson.
Steve Darling (Torbay) (LD)
I thank the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) for laying out very concisely some of the challenges in ensuring that the Bill does the right thing without going too far and breaking the things that people want fixed.
Clearly, defrauding the benefits system is wrong. One need only reflect on the level of disinvestment in many of our public services by the previous Government to note how that can bleed the system dry. I reflect on my own Torbay constituency, where the hospital tower block has scaffolding around it not because it is under repair, but to prevent bits of concrete from falling and killing people. I reflect on the lack of investment in our schools; the challenges with reinforced autoclaved aerated concrete mean that the necessary capital programme will not happen for the next six years. I reflect on the lack of investment in our police services, which means that the number of sworn officers has massively reduced. Those are serious issues that affect us following the lack of investment under the previous Government.
The Conservative Government were asleep at the wheel during the covid pandemic, as the Secretary of State alluded to in clear terms. Businesspeople in Torbay told me that they felt Rishi Sunak was—
Madam Deputy Speaker
Order. I remind the hon. Gentleman that we refer to Members not by name but by constituency. I think he was referring to the right hon. Member for Richmond and Northallerton.
Steve Darling
My apologies, Madam Deputy Speaker. Those businesspeople felt that the then Chancellor of the Exchequer was filling carrier bags full of £50 notes and placing them around towns, expecting people just to pick them up, so low were the safeguards for a number of the covid support schemes.
I will move on to an item that has already been covered by a number of colleagues: the carers scandal. More than 136,000 people—equivalent to the population of West Bromwich—have been left with liabilities of £250 million that they are extremely worried about. The Government have quite rightly commissioned a review, but it is due to report not in the near future but next summer. I challenge the Minister: why not wait for that review’s findings before we push hard on these proposals, so that we can ensure that lessons are learned? We want fraud to be tackled, but we want it done in the right way. There have been just seven working days between this Bill’s First Reading and its Second Reading. Large tracts of the safeguards and the rails around it are out for consultation as we speak, which we need if we are to understand what safeguards there will be to protect our communities.
Colleagues have already mentioned AI, and they are right to have done so, because there are real concerns about a lack of transparency—[Interruption.] Sorry, Jennie is joining in; she is having a dream about rabbits. As Liberal Democrats have already highlighted, we do not know what safeguards there will be around the use of AI. How can we back the Bill until we know what safeguards will exist? I would like to reflect on how the Bill can contain those appropriate safeguards. Sadly, as the hon. Member for Oldham East and Saddleworth highlighted, the DWP is a broken Department.
Robin Swann (South Antrim) (UUP)
Bearing in mind the money that has been claimed back from unpaid carers and our concerns about the DWP, does the hon. Member agree that this legislation would see more unpaid carers or their like come under far harder and harsher penalties?
Steve Darling
I welcome the hon. Member’s intervention; he has highlighted a serious issue, and he is spot on. One has only to reflect on the significant backlog, with 90,000 people waiting for their pension to be reviewed as part of the winter fuel allowance issues—that is a massive backlog.
Access to Work, which is meant to support people with disabilities into work, is sadly another broken system. Quite often, those wishing to receive support find that job offers are withdrawn because their work package has not been pulled together in time. An academic survey has highlighted that over three years, sadly, almost 600 people committed suicide around the management of their support from the DWP. I suggest to the Secretary of State that, while one understands the aspirations of this Bill, it is far too much of a Big Brother Bill. It is far too much of a snoopers charter, and I suggest to the Government that they withdraw it.
Oliver Ryan (Burnley) (Lab/Co-op)
I thank the Secretary of State for introducing this important Bill. Fraud is a serious issue, and we simply cannot tolerate the level of fraud that the previous Government left us with. In the year 2023-24, we lost almost as much to fraud as we spent on defence.
We have all heard the stories of people fraudulently claiming covid support and benefits to which they were not entitled. People have been claiming from the safety net not for security in their time of need, but to feather their own nests on the backs of British taxpayers. I am glad that this Government are serious about protecting public money from fraudsters, and I have no time for the whataboutery of the Liberal Democrats.
This robust Bill closes loopholes, strengthens enforcement and prioritises financial accountability. It is a great step forward for the real change that we promised at the election. The message from me and my constituents is quite clear: those who defraud or attempt to defraud the British public in any way deserve to feel the full weight of the law. I believe in doing what is right to protect taxpayers and hard-working people in business, which is why I will not stand by while fraudsters take advantage of the system. The Bill says, “If you have defrauded the British taxpayer, we will come for you, and we will not mess about.” That is what people in Burnley, Padiham and Brierfield want.
Turning specifically to the strengthening of measures on covid fraud, I am proud that one of the first actions taken by this Government was to appoint the covid corruption commissioner, and that the Bill bolsters the commissioner’s powers and doubles the time limit in which civil claims can be brought, among other measures. A typical example of rampant covid corruption was the bounce back loans, which have already been referred to by other Members. Those loans saw millions of pounds of public money shovelled out of the doors of the Treasury without proper oversight. We have all read the stories and heard about some of the heinous outcomes—huge amounts of public money gone to fake companies as well as people using stolen identities or providing products that were either defective or just plain did not exist. Meanwhile, I have had to explain to my constituents why basic public services have gone to the wall.
To put it into perspective, all in, the previous Government handed the equivalent of £20,000 of taxpayers’ cash to fraudsters every minute of the last Parliament, and now Conservative Members moan that there is no money for anything. If this Bill had become law earlier, much of that fraud could have been prevented by allowing stronger eligibility verification procedures, faster detection of fraudulent transactions and faster financial recovery powers for quicker action against fraudsters.
Moving on to benefit fraud and the Department for Work and Pensions, the same principle applies: those who defraud the British public will feel the full weight of the law, and will have nowhere to hide. We have a moral duty to recover every penny of public money that has been defrauded, and I am glad that the Bill full-throatedly says so. Benefit fraud has tripled since 2019, and since then we have lost almost £10 billion overall to fraud and error. As the now Leader of the Opposition said while in government, fraudsters were let “off the hook” by the Tories. People who work hard to pay their taxes deserve to know that every pound stolen is a pound that cannot be spent on public services, and they deserve to have that money returned. It is simply unforgivable that the previous Government allowed fraud in the benefit system to get to this level.
By voting in favour of the Bill, we will allow this Government crucial investigatory and search and seizure powers that are essential if we really want to tackle fraud in this country. I know that there will be concern from some quarters, but I am reassured that the Secretary of State has taken into consideration the necessary safeguards that will balance the need for effective fraud prevention and recovery. Indeed, if during the passage of the Bill she finds a way to be tougher and go further, she should do it; I am not sure whether two years is enough for a driving ban.
The powers we are extending to the Public Sector Fraud Authority have already proven effective. They are used by the DWP and by HMRC, and by expanding them, we will recover more funds and bring more fraudsters to justice. This is the first update to those powers in 20 years, as the Secretary of State said. Of course, DWP investigators should be given warrant powers, to save police time if nothing else.
The safeguards are in the Bill to make sure we tackle fraud effectively and, as importantly, protect people’s rights, as the Secretary of State has also said. To address a point raised a second ago by the shadow Secretary of State, the hon. Member for Faversham and Mid Kent (Helen Whately), decisions will be made by a human being in the final stages, as with any decision that affects somebody’s benefits. I think that is right, and clearly it is something that the Secretary of State has tried to stipulate.
People in Burnley, Padiham and Brierfield expect their money to be used effectively, and they demand accountability, with fraudsters who exploit the system being held to account and locked up if necessary. As the Secretary of State said, the Bill is tough but fair, with measures designed to save an awful lot of money over the next five years. That is a promising step that I believe will restore public trust and tackle financial mismanagement. I am grateful to the Secretary of State for taking the issue so seriously—more power to her elbow.
Mr Peter Bedford (Mid Leicestershire) (Con)
I would like to echo many of the points raised by the shadow Secretary of State for Work and Pensions, my hon. Friend the Member for Faversham and Mid Kent (Helen Whately). Like her, I am a conditional supporter of the Bill. While I welcome its intent, I would like to raise a few questions regarding its implementation and its true impact on reducing fraud and error in the system.
Conservative Members understand three core principles: the importance of promoting personal responsibility, the importance of law and order, and of course, the importance of reducing the burden of an overreaching state and ensuring that taxpayers’ money is spent efficiently. I am therefore pleased that by introducing this legislation, the Secretary of State appears to have accepted the long-standing arguments made by Conservative Members. The Bill, much like the previous Government’s policy paper, is both necessary and overdue. It is a scandal that fraud and error in the DWP benefits system has reached such levels. Since the pandemic, the UK taxpayer has overpaid £8 billion due to a lack of proper provision for the DWP to thoroughly investigate cases of fraud and error.
This Bill maintains the focus of the previous Government’s policy paper on fighting fraud in the system. Under the previous Secretary of State, my right hon. Friend the Member for Central Devon (Mel Stride), the DWP saw a 10% drop in fraud and error in the system, which led to savings of over £2 billion between 2022 and 2024. That was achieved through the Department recruiting over 2,000 review agents and hiring 1,400 counter-fraud professionals. Unfortunately, due to time constraints at the end of the last parliamentary Session, my right hon. Friend was unable to carry out the modernisation of information-gathering powers or to broaden the scope of cases that could lead to civil penalties. I have no doubt that, had those Conservative policies been fully implemented, fraud and error levels would be lower than they are now.
Turning to the Bill, although I support its principles, I seek clarification from the Secretary of State on several key points. First, can the Secretary of State guarantee that this Bill will not distract her and the Department from much-needed reforms to benefit conditionality, including work on health assessments and increasing incentives for people to find work?
Lewis Cocking (Broxbourne) (Con)
My hon. Friend is making an excellent contribution and I support what he is saying. We must get benefit fraud down and I support some of the measures in the Bill. On the point he has just raised, does he agree that this is only one side of the coin in dealing with benefits in this country? Of course, we must do everything we can to get benefit fraud down, but the other side of the coin is encouraging people to go back to work, because the best form of welfare is having a well-paid job.
Mr Bedford
I absolutely agree with all the sentiments my hon. Friend has expressed. Getting a job is the best route out of poverty, and it is the best route to ensuring that we have a more socially mobile society.
Secondly, my instinctive belief in personal liberty means that I believe provisions allowing access to individual bank accounts must be handled with caution. Can the Secretary of State therefore confirm that such measures will be used only as a last resort, and that the independent person appointed by the Cabinet Office will be given full oversight and will report transparently on the use of these powers?
Thirdly, the Bill proposes the restriction of driving licences for those committing fraud against the DWP, but what alternative deterrents does the Secretary of State propose for those who do not drive? His Majesty’s Revenue and Customs and the Child Maintenance Service already have these powers. I would like to see the independent person assess whether these measures are as impactful at the DWP.
Fourthly, Gareth Davies, the Comptroller and Auditor General at the National Audit Office, wrote last year that the forecast
“shows that DWP no longer expects Universal Credit fraud and error to return to the levels seen before…the COVID-19 pandemic”.
In response, the DWP explained that this was because there has been an “increasing propensity” for deceit across British society. I do hope that the Secretary of State will push back against this defeatist culture in the DWP and that my constituents in Mid Leicestershire do not continue to foot an astronomical bill for people committing fraud in the Department.
Finally, to gauge the correct path when dealing with fraud and error in the system, will the independent person conduct a review to determine whether the provisions in this Bill are just as effective as the Conservative policies of the previous Government?
In conclusion, as a Conservative, I support the intent of this Bill. It is shocking that fraud and error are at current levels. However, I urge the Secretary of State to work collaboratively with Members across the House to ensure that individual freedoms are respected, that the Bill does not distract from wider welfare reforms and that its measures deliver a long-term reduction in the welfare bill.
Gill German (Clwyd North) (Lab)
This Bill is crucial for delivering on this Government’s manifesto commitment to safeguard taxpayers’ money. As the Secretary of State has rightly stated, we must be
“turning off the tap to criminals who cheat the system and steal law-abiding taxpayers’ money.”
In Wales alone, the national fraud initiative found £7.1 million of fraud and payment errors in 2022-23, up by £0.6 million since the previous year. Figures such as this show just how much a blight on the economy fraud and error continue to be. I have heard at first hand from constituents about instances of benefit fraud that they are well aware of, such as individuals using past addresses to make claims to which they are not entitled. They know that this is not right, and they expect us to take action. It is also essential that we crack down on organised crime gangs and streamline the process through which DWP investigators can act to bring these serious offenders to justice more swiftly.
I welcome this Government’s crackdown on fraud, because every £1 lost to fraudulent claims is £1 that could be spent on vital public services—services that my constituents in Clwyd North rely on to strengthen our communities and improve lives. However, it is crucial that we make a clear distinction between intentional fraud and accidental individual error. Errors leading to overpayments may be the result not of deliberate wrongdoing, but of the inherent complexity of the social security system itself. Many of my constituents have shared their struggles with the complexity of applying for benefits, and knowing what to apply for and how. This causes significant stress, and it exemplifies the risks of penalising individuals who may simply have been unable to navigate the system, further entrenching the fear of making a mistake. The Bill must therefore go hand in hand with reforms to make this navigation far more straightforward.
A YouGov survey for Turn2us in 2024 found that 77% of respondents believed they would struggle when they needed to claim benefits if their circumstances changed. This highlights the real challenges that people face in navigating a system that is often confusing and difficult to understand. The Government must ensure that their powers to recover overpayments differentiate between fraudulent criminal activity and genuine mistakes. Without this distinction, there is a risk of penalising individuals who have simply struggled to navigate the system, and those people may already be in vulnerable situations.
Getting this Bill right, however, will mean that £1.5 billion of taxpayers’ money over five years will be saved. That money can be invested in the services that people in my constituency and across the country rely on, from public transport to local infrastructure. With fraud and error costing nearly £10 billion a year, we must act decisively to drive down this fraud and error and protect public funds. At a time when families are struggling and public services are under pressure, ensuring that taxpayers’ money is spent where it is truly needed is not just responsible, but essential.
This Bill must tackle fraud and error in a way that is fair and proportionate and does not punish those who have made an honest mistake. I know that the Government have worked hard to include measures that will ensure that these critical distinctions are made as the Bill progresses. However, it is crucial that we do not shy away from coming down on this issue, and that we ensure constituents see their hard-earned contributions going directly to the services that strengthen our communities.
Siân Berry (Brighton Pavilion) (Green)
This Bill is, at heart, Conservative legislation left over from the most dark corner of the last Administration, and I have no qualms about opposing it. I will speak against giving it a Second Reading and, alongside my fellow Green Members, will vote against it later.
One of the changes that people wanted to see when they voted out the last Government was a welfare system that treats people with dignity and respect. Sadly, this Bill is instead based on blame and suspicion of people in need of help. It has a focus on fraud when a far bigger issue is unclaimed and under-claimed benefits due to a lack of awareness, complexity in the system and stigma. The people losing out are not helped by this legislation. The Chair of the Select Committee, the hon. Member for Oldham East and Saddleworth (Debbie Abrahams), set out the risk of damaging trust in and engagement with the DWP. We also have the risk of reigniting damaging and unfair stereotypes from some people involved in wider debates on these issues on social media, in newspapers and in broadcast media.
All in all, this Bill is deeply concerning and disappointing, and I had hoped better of this Government on this issue. I sincerely hope that Ministers will go back to the drawing board and come up with a new, fair and humane policy for dealing with what is a very small proportion of fraud in our benefit system.
I have had so much correspondence on this from constituents who are very concerned about the Bill’s sweeping powers to invade their privacy and treat them as suspects, not citizens. I am talking about pensioners who need pension credit, people who are permanently disabled and whose entitlement to employment and support allowance is clear and settled, people who are precariously underemployed or unemployed who need universal credit, family carers, and people who are simply on low wages and cannot make ends meet. These are citizens, not suspects.
The clauses about what appear to be routine and regular Government access to information from bank accounts for eligibility verification—not linked to serious crime—most concern me. I am also opposed to the clauses that increase powers of search and access to homes for more serious matters, and those that would remove driving licences from people who are having difficulty paying back to the DWP overpaid money due to what may simply be human error at a difficult time in their lives, not fraud at all.
I therefore suggest that the Government come back to this House with the parts relating to covid fraud and to contractors and businesses, and maybe add something on the much bigger problem of tax fraud. On the rest, I suggest that they start again with a process of genuine listening and co-production, with those who claim social security, about appropriate, fair, respectful and secure ways of ensuring that people in need of support can receive what they are entitled to, and to protect in a proportionate way against those who may seek to defraud the Government or local authorities.
This process would fit together very well with the recent proposal from the charity Mind in response to other upcoming changes to benefit processes, which asks for a new approach to the benefits system and a commission led by disabled people to redesign benefit assessments. Mind says that this kind of process would help to rebuild trust between disabled people and the DWP. I agree, and my personal view is that this Bill will do the absolute opposite.
In summary, I believe that this Bill should go no further, and I and my Green colleagues will be voting accordingly today, to stand up for our constituents’ rights and dignity and for social security based not on intrusion and suspicion, but on support.
Jon Trickett (Normanton and Hemsworth) (Lab)
I wish to make a few points. First, it would have been impossible not to note the zeal of the Secretary of State when she was banging on the Dispatch Box and talking about fraud and loss to the taxpayer, and she is right to do that. We, on this side of the House at least, believe in public expenditure, and therefore there is a duty on us to ensure that every single penny is spent in an appropriate manner. So where it is wasted or stolen or fraud is going on, we should bear down on it.
However, although the Secretary of State started off with that zeal and passion in talking about the gangs and others, she talked most about benefit claimants. Although the Bill sets up powers for the fraud authority, it deals largely with the question of fraud in the benefit system. But the title of the Bill mentions both fraud and error, and not enough time has been spent in this debate on the nature of error, which is far bigger than can be easily acknowledged.
I looked at the figures for PIP. Between 2019 and 2024 some one in four cases for alleged fraud by PIP recipients were dropped before reaching appeal, indicating the decision had lapsed because the Department had decided in favour of the appellant. That indicates the scale of the error that this Bill also wants to address. I am going to refer to a couple of cases in a moment or two, but at the core of this Bill is the creation, effectively, of a partnership between the state and the private banks, and the Bill does not make clear what that partnership will look like. I hope that we get some clarity on that before the Bill reaches Committee.
The banks themselves have said that they are very worried about this Bill, because they have a statutory duty, imposed by this House, to make sure that they deal properly with vulnerable clients. The banks have said there is a contradiction between the contents of this Bill and the obligations that fall on them and their duty to treat people who are vulnerable in a proper way. I want to reflect on that briefly.
Let me give the House a case from my own constituency that is symptomatic of a wider problem. A couple were referred to my office. They both had learning difficulties, both were illiterate and innumerate, and they found it impossible on their own to fill in the dozens and dozens of questions which the forms require people to fill in to get access to the benefits. So they were helped to put the form together by people employed to look after such people. The DWP then decided, years later, that it had made an error and had overpaid the couple by a large amount. This error came to light as a result of a review of some kind in the Department. So here is a very poor and vulnerable couple who were unable to fill in the form on their own and who had been helped by professionals, and what did the state do? It sent them a bill for £20,000.
All Members will have a great deal of empathy—they would not be in this job otherwise—so we can imagine the state that couple were in when they received a bill from the state to repay £20,000. It was discovered after they came to my office that they had in fact filled in all the forms correctly; this was a computer error caused by someone failing to key in some of the information that had been provided to the DWP. Neither the council which was helping them nor their support workers spotted the fact they were being overpaid; nobody spotted it, so this went on for a number of years and the sum reached £20,000. A deeply vulnerable couple were left in that situation.
Eventually they encountered a local councillor in my constituency who referred them to me. We went through the whole thing and managed to make an appeal on their behalf. But this Bill gives people only 28 days once they have received an order to pay. It took us longer than 28 days to resolve this once it had got into my office. I just say to the Secretary of State that 28 days is not long enough in these complicated cases for people to produce the evidence to show they are a victim of error rather than they have committed a fraud. There was a presumption by the state that they had committed a fraud of £20,000, totally incorrectly, it turned out.
I worry that the Bill will put people like my constituents, and I imagine constituents of every Member in this House, in the same position. My constituents were fortunate to find an MP, but many people in that situation would not know how to find their way through the system.
That raises the question I have referred to about the banks. The banks have a statutory duty to protect vulnerable customers. How will they exercise that duty when they are being required to provide information to the DWP about the financial activities of various individuals banking with them?
On the subject of vulnerability, Disability Rights UK tells us that one third of all claimants of legacy benefits have mental health problems. I imagine that most of those people would be regarded as vulnerable by the banks and by every humane person in this House. One therefore wonders just exactly how we will reconcile the statutory duty on the banks with what they are required to do in relation to this Bill.
We are giving powers to this fraud authority. I personally am in favour of tackling fraud, as I have said—I am a Yorkshireman, and I do not like spending money. I do not like money being spent wastefully by the state either, and when I was the leader of Leeds city council, everyone knew I was strong on waste.
Finally on vulnerability, have the Government commissioned and received an equality impact assessment? If they have, can that be placed in the Commons Library, because the Bill will clearly have an impact on people who are extremely vulnerable? I think something somewhere in the Department will refer to that impact assessment.
I will make a couple of final points. It is suggested that the Bill will save £300 million a year by tackling benefit fraud. That is a large amount of money, but we can compare it with the £10 billion of fraud on personal protective equipment provided during covid, the £16 billion lost to the taxpayer in fraudulent covid schemes, the £5.5 billion a year of tax evasion, or the £6 billion of other illegal activities against HMRC. The £300 million is important, but it is not the largest amount of fraud that is taking place. The fraud authority is getting new powers and will be staffed up. How will it choose among the disproportionate amounts by which the state is being defrauded by various different agencies, by private individuals and, frankly, by some gangsters, too? Will the staffing be allocated according to the prejudices of politicians—whichever politicians are then in charge—or will it be allocated proportionately to the loss to the taxpayer incurred through different forms of fraud?
My final point is on the Information Commissioner. The Secretary of State suddenly announced that she received a letter today—it would be interesting to read it—but the Information Commissioner had been suggesting that the powers were disproportionate. We need to see the letter, and hopefully it will go into the Library or somewhere.
Clause 74, which empowers schedule 3 to the Bill, goes right to the kernel of the problems with this Bill, which could not be clearer. I am worried that it is not apparent how the intervention of banks will be invoked. Schedule 3 allows the banks to be invoked and then for action to take place. Will the bank account of every single citizen in the UK be looked at? That is the view of some campaign groups in society. If so, that is a massive incursion into the liberty that the British people hold dear. If not, how will the banks be asked to identify particular individuals? What process will be gone through? That is not clear, and the Bill does not explain it. I have read clause 74 two or three times, as have many other people.
Finally, can we be assured—not necessarily now, but as the Bill progresses through its various stages—exactly how that right of appeal will work? I have just referred to the 28-day cut-off, but will the Secretary of State look again at that? It seems to me that it is slightly too tight.
David Chadwick (Brecon, Radnor and Cwm Tawe) (LD)
It is an honour to follow such an excellent speech from the hon. Member for Normanton and Hemsworth (Jon Trickett). As a Welsh Liberal Democrat, I find myself concerned with the civil liberties aspects of this Bill, particularly the influence and power it gives to the big banks. I spent seven years working in data privacy as a data protection consultant, and reading this Bill created more questions than it answered. I worked on datasets involving different businesses, Governments and organisations from across the world. In particular, I want to speak to the points around the banks, because as we speak, customers from Lloyds and Halifax cannot access their bank accounts because of an outage. We should be concerned about making banks the judge, juries and executioners of social policy, particularly with something as important as welfare policy.
The UK has strong data protection laws that have been carefully negotiated over time and inherited from the European Union, and this Bill threatens to erode some of those protections and implicates treaties that we have already signed, such as the data adequacy agreement we have with the European Union. If the EU was to turn around and say that it was unhappy with the Government’s decision to monitor their subjects and citizens in this way, that would create many more problems for organisations across the UK. Citizens should have the right to object to automated decision making, and I struggle to see how asking banks to scan their datasets for potential fraud could not be regarded as decision making. Let us give citizens the right to be able to object to these decisions being made about them. If we do not, we might be violating the data privacy agreements that are already in place.
What do the Government expect the process to look like, when they are asking the banks to provide this information? The Secretary of State said that the information would be provided in a digital format, but what will that actually look like in practice? What could go wrong if, as has been mentioned, the banks are having to relay huge datasets to the Government and to the DWP in particular? That could create honeypots of data that might be easy for hackers to intercept and interfere with.
In data protection, if there is not data integrity, availability and confidentiality, essentially all of the agreements that exist with the data subject and the data processor can be said not to be valid. I therefore wonder what the Government see as the perfect framework for this data to be provided. Does it mean that the banks will have to export the names of everyone who has more than £16,000 in savings and send that to the Government to see whether they are in receipt of welfare payments?
One of the core principles of a free society is the right to privacy, yet in its current form, this Bill represents an intrusion by the state into the privacy of individual citizens. Under the Bill, the Government would be granted sweeping powers to access and monitor the personal financial records of citizens, even without any evidence of suspicious activity to justify such actions.
Many people are in receipt of welfare payments through no fault of their own, and this Bill could result in the mass surveillance of private financial information, potentially affecting 9.4 million citizens. The presumption of innocence is a cornerstone of our justice system, yet the Bill would fundamentally alter that principle. Under the Bill, individuals could be presumed guilty until proven innocent, with their personal data shared, investigated and scrutinised without sufficient cause or due process. That sets a dangerous precedent, where the burden of proof falls on citizens, not the state. We have all seen the devastating impact of errors made by the Department for Work and Pensions on individuals. Such a system could lead to disastrous consequences, where it falsely flags someone as fraudulent due to simple administrative errors or unintentional mistakes. The hon. Member for Normanton and Hemsworth acknowledged that the banks had raised concerns about whether they are the right organisations to do this.
The Bill risks creating a two-tier society where certain groups are subjected to intrusive financial monitoring by the state while others are not, which would undermine the principles of equality and fairness that our society is built on. In the current climate where banks are closing branches left, right and centre—Lloyds bank has announced that it will close its branch in Pontardawe—the Government should not be asking banks to act as judge, jury and executioner in social welfare policy while granting themselves access to people’s bank accounts but not requiring those banks to ensure that citizens have access to their bank accounts. That does not sit well with the liberal society that I want to live in, and I do not believe that my citizens want to live in such a society, either. I call on the Government to rethink their proposals and to assure us that the Bill will not undermine our data protection adequacy agreement with the European Union.
David Pinto-Duschinsky (Hendon) (Lab)
We have heard lots of statistics and detailed policy questions, but I want to start by sharing two stories. The first is of Antonia Foods in Wood Green, north London. From the outside, it looked like a normal neighbourhood corner shop selling fruit, veg and groceries, but from its back room Galina Nikolova and Gyunesh Ali ran a vast fraud operation, making use of transnational networks to file hundreds of illegal UC claims. By the time they were caught, they had defrauded the DWP of over £50 million. When the police finally raided their addresses, they found cases stuffed with cash. Nikolova and Ali received prison sentences, as did many of their associates, but the reality is that most of the money they claimed had long since disappeared, likely spirited out of the country. They had successfully stolen from us all.
The second story is of Yvonne, a disabled woman who was paid thousands of pounds more in benefits than she was entitled to over a number of years as a result of an innocent mistake and is now struggling to make ends meet as the DWP deducts overpayments from her current entitlement. Both those stories illustrate why we so desperately need the Bill.
The extent to which fraud against the public purse spread under the last Government is breathtaking. The proportions are simply staggering. As my right hon. Friend the Secretary of State said, public sector losses amounted to £55 billion last year—as much as the defence budget, and three times what we spend on police in England and Wales. That loss costs every man, woman and child £800 a year and is the equivalent of a third of the entire national VAT take.
This is not a victimless crime or some technical infringement. It robs every family in Britain, erodes our public services and takes money that could be used to help those most in need, depriving the most vulnerable of support. My constituents in Hendon and people across the country rightly expect it to be tackled. This is a crime that feeds on the most disadvantaged and weakens not only public services but the public’s faith in those services and their fairness. I say gently to those who have criticised the Bill that there is nothing progressive and nothing compassionate about allowing fraud to fester. It is a scourge that must be tackled. It is a scourge that grew out of control and was professionalised under the last Government.
Perhaps no area illustrates the challenge that we face, how it evolved and the last Government’s catastrophic failure to kerb fraud better than benefits. The DWP’s net bill for fraud and error, even after deducting underpayments, is £8.6 billion. That is £272 a second, £16,300 a minute and almost £1 million an hour. In the time that it will take for us to have the debate, the DWP will have lost more than £3 million. The bill for fraud and error is roughly the same as the Department’s entire programme budget. The DWP loses as much to fraud and error as it spends on every active programme it has to help the unemployed, the long term-sick, those with disabilities and the elderly. The picture is shocking, and it got much worse under the Conservative party.
The headline figures for fraud and error excluding underpayment tripled in cash terms between 2010 and 2024 from £3.3 billion to £9.7 billion. As bad as those figures are, they actually understate how badly things deteriorated under the Conservatives. Claimant error rose only slightly in cash terms, while official error remained flat. In contrast, fraud rose a stunning sevenfold in cash terms and more than fourfold as a proportion of the total benefits budget. That was not some act of God; it was the result of serial failures by the Conservatives, who failed to understand that fraud was evolving and failed to modernise the DWP’s powers to allow it to keep up in the arms race with the fraudsters. They also made truly terrible policy and design choices that actively fuelled the fraud crisis.
That can be seen nowhere better than in how the Conservatives set up universal credit. Because of their failures in properly establishing and policing its gateway, it became a magnet for fraud. Universal credit accounts for just 22% of benefit spending but contributes over 76% of all benefits fraud. Almost £1 in every £9 claimed through UC in the Conservatives’ last year in power was claimed fraudulently, compared with just £1 in £25 for housing benefit, £1 in £300 for PIP and just £1 in £1,000 for pensions.
The reality is that the Conservatives failed to take the threat of fraud seriously and failed to understand how it was being professionalised and industrialised, as my earlier story showed. They left us all to pick up the bill. They say that they acted, but the truth is they did nothing for years. Even when they finally got their act together at the end of their term in office, it was too little, too late. Once again, we are having to step in to clear up their mess. They owe everyone in the House and everyone in the country an apology. It is striking that in all their bluster during the debate, we have not heard the only word that they should be uttering: sorry.
Fraud exploded on the Conservatives’ watch because of their failings, but the pattern of fraud also tells us much about why the powers outlined in the Bill are so desperately needed. The DWP’s own statistics show that of the £7.4 billion lost to fraud last year, about £1 billion was lost to people who held too much capital to be eligible, £1.3 billion was lost to those who had failed to report their self-employment earnings, and a further £1.3 billion was lost to those who had failed to provide sufficient evidence. A further £250 million was lost to those who were abroad. Those frauds could have been caught with better data and better investigatory powers. It would have been possible for banks to spot people with too much capital to claim, or those with considerable earnings, yet today, because of the last Government’s failure to update their legislation, the DWP cannot compel information digitally.
Virtually all banking is now done online, and yet while fraud is propagated through digital channels and moving at lightning speed, the DWP is still forced to rely on analogue tools. In other fields, we already integrate information and get institutions to work together to prevent fraud. Banks regularly scan patterns that indicate fraud; benefits should be no different. We need digital tools and access to digital data to fight fraud. As with tax, investigators should have the powers they need to recover funds from those who are no longer on benefits. That is why the powers that the Secretary of State is proposing to take are so important as they will allow us to better identify those committing fraud and take more effective recovery action to get taxpayers’ money back.
That brings me back to my second story. Along with the measures that the Chancellor brought forward in the Budget, these measures will help us protect legitimate claimants by helping to pick up overpayments earlier. Last year, 480,000 people had deductions averaging £500 taken from their universal credit payments because of overpayments. Underpayments can be a source of huge anxiety and hardship. Preventing them and catching them earlier will help protect the most vulnerable claimants. That will be possible only because of the better data and the better processes that the Bill will help support.
As we heard from the hon. Member for Brecon, Radnor and Cwm Tawe (David Chadwick), some have voiced concerns about whether the powers proposed in the Bill will impinge on people’s rights. I am strongly reassured by the powerful raft of safeguards that the Secretary of State has included in the Bill. Those safeguards mean that new debt recovery powers will be focused not on those on benefits, but rather on those who are neither on benefits or PAYE, and the DWP will not have access to people’s bank accounts, contrary to what some have implied during the debate. Those safeguards will include independent oversight and options for appeal. I am pleased to hear that, on top of that, the ICO believes that the safeguards address the concerns that it had with the Conservative party’s proposals.
This is a fair and balanced package, which modernises our approach and gives us the digital tools to fight a digital scourge, and the enforcement powers to take on organised crime while protecting the vulnerable. This Government and this ministerial team are modernising our system to protect public money, help the vulnerable and, critically, get Britain working. I am proud to support the Bill.
Kirsty Blackman (Aberdeen North) (SNP)
I want to comment on a number of speeches that have been made. As the Scottish National party tabled a reasoned amendment, which unfortunately did not get selected, it will not surprise anyone that we have a number of significant problems with the Bill.
Part 1 of the Bill relates to recovering the covid moneys and the services and goods that the Government received that were substandard, for which organisations need to pay the Government back. Since its scope does not extend to Scotland, I will not add many comments, except to note that I have a long track record of bringing up covid fraud, particularly PPE frauds, in this Chamber. I will support the Government’s work to recoup the money that was fraudulently taken in Government contracts that did not deliver.
I oppose the DWP elements of the Bill, which are not what social security should be about. As my friend, the hon. Member for Brighton Pavilion (Siân Berry), said, the social security system should be built on dignity and respect. Very few Members have said that we should have a social security system that works. Members have talked about tightening up eligibility criteria. Last week, people talked about the number of scroungers that there are—people not in work who are claiming social security benefits—and how desperately we must get them back to work. People should have opportunities, but it is also important that we have a social security system that catches people and supports them when they are not able to access those opportunities, because they are struggling with their physical or mental health or have learning difficulties. We need a social security system that works.
I have asked the Minister on a couple of occasions about co-production, which an hon. Member also mentioned. Co-production is needed when it comes to changes to disability benefits. If the Government are to reduce the amount of money being paid out for disability and sickness benefits, they must work hand in hand with disabled people. They must not just say, “We are going to reduce it by this amount.” They need to sit round the table with disabled people to have those conversations and to make clear what changes they want.
In Scotland, we have reformed the previous PIP system to create the adult disability payment and child disability payment. I used to get a number of emails and people walking through my door who were terrified about their upcoming PIP assessment—having to fill in those forms again, and sit and write a long list of the normal things that their child cannot do, on an annual basis. We have changed that in Scotland. We do not have regular assessments. If someone has a longer-term condition, they do not have to go through that awful situation on an annual basis. The Government need to focus on dignity, respect and co-production. That should be way ahead of conversations around fraud.
It is important that the social security system, the procurement system and the tax system do not propagate fraud. As has been mentioned a number of times by Members from across the Chamber, the tax system creates a huge amount more fraud and a huge amount more could be recouped from that than from the social security system.
I have major concerns about how the Government are approaching the issue. Why are they introducing this Bill before the child poverty strategy? Why is this more of a priority than cancelling the two-child cap and taking kids out of poverty? Why are the Government talking about nearly £10 billion a year owed to the DWP? Just to be clear, that is not what they intend to recoup. According to the impact assessment, at least 30% will be written off, so £10 billion is a misleading figure. It might be the total amount of fraud and error, but it is not what the Government expect to get back. It does not take into account that they will spend £420 million over the next few years just to increase the number of staff or the costs of the eligibility criteria. It is also not a net figure—it is just the headline figure right now. All the work being done on the legislation is to recoup a fairly insignificant amount of money, but it will put people through absolute hell.
As has been said, the Bill will treat people as guilty rather than begin from the point of view that they are innocent. Potentially, it will put every person applying for benefits through an eligibility check through their bank. It will put them under surveillance in a way that is not compatible with the human rights that we should all expect. Let us remember that we are talking about people who, in some cases, are incredibly vulnerable, and may have their driving licence taken away.
The hon. Member for Normanton and Hemsworth (Jon Trickett) talked about two of his constituents who found themselves in a difficult situation and who did not have a huge amount of literacy. It is possible that one of those people could have had a driving licence. For disabled people, a car can be an lifeline—the most important thing. For people with mental health problems, opening letters can be really difficult. People might not engage with the DWP through no fault of their own, but because they are not getting the mental health support that they need.
That £10 billion or however much will be recouped will not fix mental health services to ensure that everyone is capable of getting up in the morning, having their breakfast, having a shower and opening the letters in scary, big writing that have come through the door. It will not ensure that people can engage in that system. It will not teach them to read and write—they may not be capable of that. I share the concerns of other Members that, for some individuals, the powers of recouping and of revoking a driving licence are entirely inappropriate. We have not had enough reassurances on that.
My concerns about the Information Commissioner are still extant. The Secretary of State said that she has had a letter from the Information Commissioner. I understand that it is probably not her fault, but I am really disappointed that we have not seen that letter in advance of today—[Interruption.] I am being told that it is being published.
The Parliamentary Under-Secretary of State for Work and Pensions (Andrew Western)
It is on the ICO website.
Kirsty Blackman
Unfortunately, I have not seen it because I was not aware of its publication until the Secretary of State stood on her feet. It would have been helpful for Members to have been given that information beforehand, so that we could have read the Information Commissioner’s comments in advance of Second Reading, given a number of us have mentioned the significant concerns of the Information Commissioner in relation to the previous Bill.
The Secretary of State said that the Bill is tough and fair. Another Member talked about tax and benefit fraud, and the issue with the DWP making overpayments. They suggested that this new system will ensure that overpayments are caught earlier. I suggest that that is a tad over-optimistic. The DWP makes mistakes and makes overpayments, and now we are giving it another place to make errors. The DWP can now see into people’s bank accounts and say, “You don’t meet the eligibility criteria, so you won’t be getting the social security payment.” Until we have built up much a higher level of trust, most people will assume that these powers will create more errors in the system, rather than reduce them.
Lastly, on a subject that I mentioned earlier, a massive number of disabled people have no trust in the social security system. They are massively concerned about the cuts coming down the line and concerned in particular that they will bear the brunt of those cuts, given the comments from so many politicians, using the word “scroungers” and talking about people fraudulently claiming benefits.
Despite the fact that the hon. Member for Hendon (David Pinto-Duschinsky) very helpfully laid out the figures on every pound claimed fraudulently, which I genuinely thought was very helpful, disabled people feel that they are being lumped in with the entire group of people claiming fraudulently—whether they can or cannot work, whether they are being paid universal credit or PIP to assist them with their work, and whether they have a helpful employer or have not been able to find one.
People feel they are being demonised by politicians simply for claiming social security, which they are entitled to. Until that trust is rebuilt, making the decision to look at their bank accounts, as in these measures, is the absolute wrong decision. The Government need to do what they can to put dignity and respect at the heart of the social security system and rebuild people’s trust in it before they introduce these sweeping, disproportionate powers.
The hon. Member for Brighton Pavilion mentioned the fact that there are so many unclaimed benefits. Surely ensuring that people have the money they are entitled to, ensuring that they have enough to live on, reducing child poverty and ensuring that not one child grows up in poverty should be more of a priority for the Government than introducing eligibility criteria and demanding that banks provide financial information on social security claimants.
Zarah Sultana (Coventry South) (Ind)
I will focus on the powers in the Bill that force banks to trawl through our private financial data, scanning for indicators of fraud and error—indicators that are not publicly disclosed —and flag those individuals to the Government. These powers will allow the Department for Work and Pensions to seize money directly from bank accounts without due process, suspend driving licences and even search properties and personal devices. They are not the hallmarks of a free and democratic society but the tools of an Orwellian surveillance state.
Let me be clear: we all agree that genuine fraudsters should be held to account, especially multimillionaire tax avoiders, organised criminal gangs and the dodgy companies that exploited covid funding. However, the Bill goes far beyond that. It will subject millions of innocent people—disabled individuals, carers, jobseekers, pensioners and parents—to unwarranted financial surveillance, treating them as suspects by default, simply because they receive state support. It is deeply unjust. The Government already have extensive powers to investigate suspected fraud; under existing legislation, they can access bank accounts where there is reasonable suspicion of criminal activity. However, the Bill removes the need for suspicion altogether. Put simply, this is mass surveillance.
There are significant risks. We have already seen the devastating consequences of automated decision making in the Post Office Horizon scandal, where faulty software led to hundreds of wrongful prosecutions. The Bill risks repeating that injustice on an unprecedented scale, and we should not have to wait for an ITV drama to expose it in the future. The DWP has already made mistakes in accusing benefit claimants of debt. Last July, The Big Issue reported that a disabled woman had her disability benefits stopped and was accused of owing the Government £28,000, which the DWP later admitted was its mistake, while a single mother was accused of a £12,000 debt when the DWP actually owed her money. Algorithm-driven financial surveillance will inevitably result in errors that will disproportionately affect the most vulnerable in our society: the elderly, the disabled and those already struggling to make ends meet. Even a 1% error rate in the AI system used by banks could lead to thousands of benefit recipients being wrongly flagged, unfairly investigated and forced into lengthy appeals.
Moreover, the Government’s own impact assessment suggests that these measures would recover just £146 million annually, which is less than 2% of the estimated annual loss to fraud and error. In contrast, £23 billion in benefits and support goes unclaimed each year, while £3 billion in claims is underpaid. Yet the Bill does absolutely nothing to address those injustices or to build a security system based on dignity and respect; instead, it targets those who can least afford to be wrongly flagged as fraudsters.
This legislation represents a rushed process with little scrutiny. At 116 pages long, the Bill was scheduled for Second Reading just seven working days after First Reading. It is an attempt to push through mass surveillance powers with minimal debate, bypassing the necessary checks and balances that should apply to any policy, especially one that affects millions of people’s fundamental rights. The powers are also legally questionable, with privacy experts warning they could breach article 8 of the Human Rights Act 1998.
The Bill risks creating a two-tier justice system—one for the very wealthy, who will never face this kind of intrusion, and another for those on benefits, who will be subject to constant scrutiny, automated checks and the threat of their money being seized, perpetuating harmful stereotypes about so-called benefits cheats. It will therefore also distract attention away from the millions of households that are legitimately supported by a social security system that exists to support every single one of us when we need it.
Civil society groups including Amnesty International, Big Brother Watch, Disability Rights UK and Age UK have all condemned the powers, warning they will entrench discrimination against the poorest and the most vulnerable. We cannot allow that to happen. We cannot allow the Government to turn our banks into agents of the state, spying on their customers and reporting back to Whitehall; we cannot allow the presumption of innocence to be eroded by a culture of suspicion and surveillance; and we cannot stand idly by while the most vulnerable in our communities bear the brunt of this overreach. This is not the change people voted for. I therefore urge the Government to remove clause 74 and schedule 3 from the Bill.
Jim Allister (North Antrim) (TUV)
None of us, I hope, has any empathy with fraudsters. I trust that it is the united view of this House that fraud, wherever it occurs, should be pursued with rigour. However, that does not mean that a Bill that proclaims itself to have that purpose should be simply nodded through. The fine print of this Bill deserves as rigorous an examination as any other.
There are a number of areas in this Bill that I find concerning. I find the equivalence in investigative powers and the initiation of those powers between investigating fraud and investigating overpayment troubling. There is a huge difference between a person who enriches themselves through fraudulent activity and someone who is innocent, but is the recipient of an overpayment—not because of a mistake they have made, but because of a mistake the Department has made. That is a huge distinction morally, and in every other way. Yet it seems to me that the Bill makes an equivalence between the powers of investigation in that regard, which is something I find discomforting and unfair.
I also find some of the detail we find in the Bill surprising. As our law presently stands, a person can be regarded as and held to be a fraudster, in the eyes of the law, only if they have been convicted of fraud beyond all reasonable doubt. That is the hallowed and long-standing criminal standard that has to be reached before someone is convicted as a fraudster. But no longer is that the standard. Indeed, no longer is it for the courts to decide whether someone is a fraudster. Now, under clause 50, the Minister can decide whether someone is a fraudster, and not on the criminal standard but on the balance of probabilities. Clause 50 states:
“The Minister may impose a penalty on a person if satisfied, on the balance of probabilities, that the person has carried out, or conspired to carry out, fraud”.
The Minister—not our courts, but the Minister—will decide, on the balance of probabilities, whether someone is a fraudster. How could that be right? How could that be fair?
It gets worse, because when we read clause 50 with clause 52, we discover that the penalty is measured not by what the fraud was in every case, but by what the fraud might have been. So a person can be penalised on the balance of probabilities; not by a court, but by a Minister; and not for having obtained anything fraudulently, but for what they might have obtained had the fraud been perfected. I say to the House that is taking us far too far. That needs to be re-examined.
Then we come to clause 91. Under this astounding, disconnected provision, a person can be disqualified from driving if they have failed to pay back £1,000, whether they got it by fraud or, as I read it, they were overpaid it. They can lose their driving licence not because they have been convicted of fraud, but because clause 91(2) states that the schedule that will now be amended will make
“provision for a liable person to be disqualified”.
What is a “liable person”? We have to go to clause 11 to discover that a “liable person” is somebody on whom the Minister has served a recovery notice. If the Minister serves a recovery notice on you, that makes you a liable person under clause 91, and under clause 91, if you still have not paid back £1,000, you can lose your driving licence. Really? I do think that with this measure we have hugely run away with ourselves in terms of what is proportionate and appropriate.
There is much in this Bill in the way of overreach, which the Government need to re-examine. Yes, let us go after fraudsters. Yes, let us recover the money that they should never have had. But let us do it in a way that respects the traditions of our legal system and of the decency in our society, instead of the overreach of some aspects—not all—of the Bill.
The Bill does not apply to the area I come from, Northern Ireland, but inevitably, because parity controls the welfare payments that are made in Northern Ireland, there will eventually be some parallel, reflective legislation. That will be needed, but I want to say a word—I want the Minister to take it on board—about the Northern Ireland Executive. Welfare payments in Northern Ireland are demand-led. They are administered by the Department for Communities in the Northern Ireland Executive, but they are demand-led. Therefore, in that sense, they are not coming out of the Northern Ireland block grant.
It seems to me that there is a tendency within the Northern Ireland Executive to be less rigorous than they ought to be on fraud, because they are not recovering money that has been misused from the block grant; they are recovering money that has been misused from the Treasury. That, for some of them, shamefully, does seem to create a disincentive to pursuing fraud recovery with the vigour that they should. I say that on the basis of figures released in a number of Northern Ireland Assembly answers. They show that in the last five years there have been only between 200 to 300 fraud pursuit cases in Northern Ireland, touching on only £4.5 million. There is a lot more fraud in the benefits system in Northern Ireland than £4.5 million.
Yes, let us pursue fraud with vigour, but let the Secretary of State put some pressure on the Northern Ireland Executive to ensure that they are living up to their obligations to also save the Treasury the money that has been lost in fraud.
Sally Jameson (Doncaster Central) (Lab/Co-op)
The Bill sets out a clear agenda that this Government will be tough on fraud. It will ensure fairness for benefit claimants and offer confidence to the taxpayer. When it comes to taxpayers’ money, fraud and waste cannot and must not be tolerated. I am pleased that the Government are taking that approach, and I am proud to speak in favour of the Bill.
I was appalled, frankly, to learn that a total of £35 billion of taxpayers’ money has been lost to fraud and error since the pandemic. I think of my constituents in Doncaster Central, of how desperately our hospital needs refurbishing, of how many children live below the poverty line, and of how many of my constituents are stuck on NHS waiting lists. I am outraged at just how much money, which could have helped to solve those problems, was instead drained by fraudsters, sometimes on a large and organised scale, and by the careless errors of the previous Government. With these measures, this Government will protect claimants by preventing errors earlier, ensure that our benefits system works for those who claim benefits they so desperately need, and give taxpayers the right to see their hard-earned money spent well.
I welcome the fact that the Government are bringing the Department’s search and seizure powers in line with those of HMRC and the Child Maintenance Service, and I am pleased to see the Department’s commitment to ensuring strong safeguards on those powers, including the appointment of an independent body to conduct independent inspections of the Department’s investigations. We must ensure that the tough measures we introduce to recoup taxpayers’ money are met with equally tough scrutiny and safeguards. I hope that will remain a priority as the Bill passes through the stages of this House.
I have no doubt that some Opposition Members will claim that they introduced measures to crack down on benefit fraud. Indeed, they did—eventually. At the very tail end of the last Parliament, they tagged measures on to the end of another Bill, which never passed. It has fallen to us, as it has in many other areas, to take the necessary action. Whether it is benefit fraud or fraudulent covid contracts, these are not victimless crimes. It is public services and our constituents who lose out. We need to get on with this job. We cannot afford to lose more public money, which our constituents pay for with their taxes and should feel the benefit of.
Tough measures, tough sanctions and tough safeguards are the key to ensuring that our welfare system is fair for its genuine claimants and robust enough to ensure that taxpayer money goes where it is supposed to go: to the people and the services that need it most.
Jim Shannon (Strangford) (DUP)
Let me, at the outset, make it clear for the record that I think it is important that the Government pursue fraud. I asked the Secretary of State about that this afternoon during DWP questions. There is a story in the newspaper today, and it may even have been in yesterday’s Sunday paper, about a gentleman who defrauded the system of about £800,000 and skipped off to, I think, Romania. There was no treaty whereby we could pursue him, but obviously the Government wish to ensure that all those moneys are recoverable. The point I am making is that there are clearly those who set out to defraud the system, and it is important for the Government to respond positively. I think they are doing that, but I have some concerns.
When we speak to constituents on the doorstep, none of them have an issue with people who need help from the state—who are ill, or out of work for other genuine reasons—but there is a definite feeling that people should not claim and work on the side, and I agree that we need to clamp down on those who are “doing the double”. That terminology may not be used very often, but its meaning is clear. The statistics suggest that there may well be an issue, although the scale referred to in Government documentation varies greatly. The National Audit Office puts the amount across the United Kingdom of Great Britain and Northern Ireland in 2023-24 in the range between £5 billion and £30 billion. It is clear that we need to do something effective. Those who work hard and are barely making ends meet are crying out for fairness. However, I fear that we may open up powers that cannot be removed and that would turn us into a nanny state.
In my earlier intervention on the Secretary of State, I expressed concern about those who make genuine and honest mistakes. The hon. and learned Member for North Antrim (Jim Allister) referred to that, in his polished and qualified way. People fill in forms and think they are doing it correctly, but perhaps they make a mistake and tick the wrong box. It happens all the time. I asked my right hon. Friend the Member for East Antrim (Sammy Wilson) whether he had dealt with many such cases over the years. I have dealt with about 30, perhaps 40, every one of them involving a genuine mistake when someone unfortunately ticked the wrong box and had to repay the money. I am concerned about those who are disabled, those who are anxious, those who are depressed, those who have emotional or mental issues. I do not want them to become the “low-hanging fruit” for Ministers and the Department to pursue, rather than pursuing those who are guilty of claiming benefits only just this side of £1 million, like the person I mentioned.
A girl in my office, a member of my staff, works full time on benefits, five days a week. Her diary is full from 9 am until 5 pm every day of the week. Disabled people come to my office, and they are the people whose cases are genuine. They are the people who have applied for benefits and are anxious and worried about the whole thing. I always say to them, and the girls in the office say it as well, “If you are going to get the benefit—and it is right that you do—put the facts on your application form, and the Department will make a decision.” Those are the people I fear for. They are the people I worry for. They are the people about whom I myself feel anxious on their behalf, worrying about what could happen to them.
When people apply for benefits genuinely, the DWP does sometimes make mistakes. Every one of the 30-odd people I mentioned earlier with whom I have been involved over the years was successful because there had been a genuine mistake. I have to say, “Guys, I respect this greatly, because I understand the principle of what you are trying to do, so you should never be in doubt about where I am coming from”—I apologise, Madam Deputy Speaker; I should have referred to “hon. Members” rather than “guys.”
The hon. and learned Member for North Antrim mentioned people having their driving licences removed if they have not repaid £1,000 when it is money that, perhaps, they should not be in receipt of. However, if their driving licences are taken away when they have simply made a mistake, and they are penalised and deemed to be guilty, they cannot go to their jobs because they have no cars, and cannot do the work that would enable to pay the money back, that is overkill.
I also want to say something about bank accounts. Everything I do in this House comes from Strangford, and it will not surprise anyone that the examples I will give are Strangford-based. I say that to help all the other Members here. I was contacted by a constituent whose brother has been diagnosed with paranoid psychosis and was living in a tent when she realised that he had been turned out of his apartment and his benefits had fallen by the wayside. She took control, got him on benefits and found him a private rented apartment. Because he does not trust banks, which is part of his health issue, all that is done through her accounts. Without her, he would be unable to pay rent or do anything, as he does not trust Government and she handles it all. Will her bank accounts be open to Government scrutiny? Will she hand over care to the social worker who ceased contact because her brother would not engage, and signed him off as too difficult to work with? That is all part of the paranoid psychosis—the health problems, the disabilities, the emotional and mental issues that such people face. I think of these people. I will always speak up for the wee man and the wee woman who are penalised through a system that tries hard to achieve the goals that it sets itself, but unfortunately—again—falls by the wayside.
Who will take care of the situation if this man’s sister objects to Government rifling through her accounts when she works hard and pays more than her share in tax? One hon. Gentleman—I cannot remember who it was—said that HMRC should be pursuing other moneys with the same zeal that they are showing in this case. What security will my constituent have to ensure that her privacy is not sacrificed because she is helping her brother? More importantly, how many others like her —friends and families of those suffering from mental ill health—will pull back because of that?
I ask the Minister for an assurance about such cases, and I think it important for each and every one of us who has a conscience—I am not saying that no one else has a conscience; perhaps I should say, those of us who have concerns on behalf of our constituents—to bear them in mind. A Government overreach for those who are caring for the mentally ill, and who already lead a life of stress owing to their caring duties, without recompense from the Government because they already work—could lead to more pressure from the state to fill the breach. I must respectfully say that I do not see how we have the capacity for this.
I never want to see a scenario in which genuinely disabled people are so concerned about the scope of Government regulation in respect of their moneys that they do not claim what they are entitled to. That would be terrible. The Government set a system—whether it is the personal independence payment, universal credit, disabled living allowance, pension credit or attendance allowance—and all those benefits are there for a purpose. When people come to me, I always say, “The Government have set this aside for you. It is yours if you qualify and the criteria are there.” I think of people who save for a holiday, or perhaps their partners work and take them on a holiday tailored to their needs; perhaps they will go to the hotel in Portrush, not far away, or perhaps they will take a plane to Jersey, with a wheelchair and an assistant to get them on and off the plane. I do not want such people penalised when their disability is such that they can only do that if there is someone with them. They may be afraid to go on that holiday because they fear being labelled a benefit cheat, while those who are doing the double, as it used to be known, should be unable to continue that life at the expense of the taxpayer. My question to the Minister is this: how do the Government intend to find the balance?
It is critical for us to get that balance right. I understand the urge to do this, and it is right to do it, but I do not want those who are justified in receiving a benefit to be penalised. I note that the Government believe they could reclaim some £54 million in 10 years. If that figure is right, this is worth pursuing, but how much will it cost to run over that period? How much will it cost the Government to chase all these moneys? How do we send a message to those who are concerned about their loss of freedom to a Government who can look into family bank accounts that this is a measure worth taking?
My final words to the Government are these: “Do. the job that you have set yourself, but make sure you do not chase the wee man and the wee woman”—the people whom I represent, the people whom the hon. Member for Blyth and Ashington (Ian Lavery) represents, the people whom we all represent on both sides of the House.” Those are the people I am speaking up for tonight, and I want to make sure that they are protected.
John McDonnell (Hayes and Harlington) (Ind)
I do not want to repeat what has been said by others, but I will share my perspective on the Bill. It is in two parts, and there is almost unanimity about the first part, which deals with how we tackle fraud carried out through contracts and so on. I thank the hon. and learned Member for North Antrim (Jim Allister) for pointing out some of the elements of real concern in that part of the Bill, which, to be frank, I missed. The Bill has been published for only a week, and it has been difficult to go through it. I have been somewhat distracted by the Government trying to concrete over a quarter of my constituency with a third runway at Heathrow, and elements of the Bill need further examination. To be frank, I think it will face legal challenge in some form.
I cannot welcome the first half of the Bill enough, which deals with tackling overall fraud. I was the first MP to raise with the then Chancellor the corruption that was taking place with covid bounce back loans. I raised it a number of times in the House, and I wrote to him twice. I received a standard letter that was almost identical to the response I got from the banks, which said they were going through their usual investigatory process, and then we eventually discovered that fraudulent claims for bounce back loans amounted to at least £5 billion. I welcome the first half of the Bill, because we need to be ruthless on the corruption and fraud that takes place.
However, the second part of the Bill, particularly clause 74 and schedule 3, is where we are straining, to be frank. Some hon. Members have mentioned the context already. There is real fear out there among people who claim welfare benefits, particularly disabled people. It is a result of their being targeted, and of careless language in this place and elsewhere. That is then exaggerated even further by the media, and benefit claimants become targets.
I echo what the hon. Member for Strangford (Jim Shannon) said, because I have the same problem in my constituency. Sometimes it is about telling people to claim what they are entitled to, because they are terrified of the stigma around claiming benefits at the moment, particularly older people. The atmosphere that we now have is a climate of fear, and I am worried that this debate will add to that climate of fear.
The Secretary of State said that any proposal has to be proportionate, safe and fair, but there are real concerns about the proportionality of this Bill. As other Members have said, it is a mass surveillance exercise. The road to hell is paved with good intentions, and I fear that once we start down the path of surveillance in this way, others will come back with proposals for where we can go further. As Members have said time and again, there is an issue with safety. How many lessons do we have to learn about the way that computer systems and the use of algorithms have destroyed people’s lives? My hon. Friend the Member for Normanton and Hemsworth (Jon Trickett) said that the banks are gearing up, but they have expressed concern that the Bill is almost an exercise beyond their abilities. As a result, there will be errors, which will reinforce the climate of fear around benefits.
Jim Shannon
I apologise for omitting this issue from my speech. Does the right hon. Gentleman agree that the Government have decided to penalise those who have been charged with alleged fraud? Does he feel that there should be a system in place so that they can appeal?
John McDonnell
That is why the code of practice is going to be interesting. The code of practice needs to be published as rapidly as possible to see what mechanisms will be available for us to protect our constituents.
I have one area of experience with regard to the flagging up of sums of money that raise concerns: in the debates that we had on tax avoidance, we talked about suspicious activity reports. There is a record of real faults and a high number of errors in that process. As a result, people have been not just penalised, but penalised unfairly and exposed unfairly. It is not that I am in any way a defender of tax avoidance or anything like that, but if we are to introduce a system, we need to make sure that it is secure and effective, and does not penalise people unfairly.
The Bill is supposed to be proportionate, safe and fair. The reason why people will feel that it is unfair is that it specifically targets people who are often in desperate need. If there was a group of people whose accounts we would want to monitor because there has been a history of fraud, and who have had to pay money back—some have gone to prison—it would be MPs. I was here during the expenses scandal. Following that experience, are we really not monitoring our accounts for undue payments and so on? Why is it always the poor who we target in this way?
As I said, I am really worried about the climate of fear, particularly among people with disabilities, which the hon. Member for Torbay (Steve Darling) mentioned. We know about 600 suicides that are related to DWP activity. We circulated John Pring’s book “The Department”, which looks at the DWP’s role in those deaths, to all MPs, and it was starkly obvious that it had made a significant contribution, if not caused them. I remember a case in Scotland in which a poet in Leith committed suicide but did not leave a suicide note; he just left a letter from the DWP beside him.
My view is that whatever steps we take in exercising the powers in the Bill, we have to be extremely careful. One of the things I want to raise—if I can crowbar it into this legislation through an amendment, I will—is that a number of us, on the basis of the work of Mo Stewart, who does research on poverty and welfare benefits, have said that we must give people assurances that they will be protected and that we will do everything we can to cause no harm, and certainly not cause any further suicides, but we must also learn the lessons of what has happened in the past.
One of Mo Stewart’s proposals is for an independent advisory panel for DWP-related deaths. We have exactly that system in place for deaths in custody. We have an advisory system at the moment for the DWP but, to be frank, it is not working. The minutes of the panel’s meetings are cursory, and it does not do detailed reports in the same way as the deaths in custody panel. If we are to reassure people out there that we really are looking after their interests, that is one small step that we could include in this legislation. I am not sure that we will be able to crowbar it into the title of the Bill, but I will do my best and would welcome other Members’ creative drafting to help me. Such a measure would send out the right message. The Secretary of State has tried to do that tonight with her assurances about the processes, but I am not sure whether that will be enough, given the climate of fear that we now have.
What are the next steps? I hope that there will be sufficient time in Committee for us all to get our head around the detail of the Bill. I hope that there will be more consultation; it would be better to delay Report to enable that. I also wish to raise the same issue as the hon. Member for Brighton Pavilion (Siân Berry): we were given assurances that the proposals would be implemented by co-production rather than announced from above.
It would be an example of good governance if there were a process of proper consultation. After the Ellen Clifford case, in which the High Court ruled against the previous Government on their consultation, the spirit of the Government’s response was that there would then be proper consultation, hopefully on the principle of “Nothing about us without us”. Consultation on the detail of the Bill throughout its passage would be the best example that this Government could give of that process working productively so that we get it right and we do not endanger any more people, as unfortunately has happened in the past.
John Milne (Horsham) (LD)
I am sure that I speak for all hon. Members when I say that putting a stop to fraud of any kind is welcome, especially at a time when public money is scarce. However, many of my Horsham constituents have contacted me to say that the powers outlined in the Bill are very far-reaching and, if abused, could have hugely detrimental effects on benefit claimants through no fault of their own.
As my hon. Friend the Member for Torbay (Steve Darling) said, the carer’s allowance repayment scandal shows exactly what can go wrong when the state has high-level powers over debt recovery. Due to departmental error, not the claimants’ error, there were more than 250,000 cases of overpayment to carers in the last five years of the Conservative Government. That is an enormous number. What would have happened to those carers, who are paid very little for the huge service to society that they provide, if the powers in the Bill had been in place during those five years? They would probably have faced forced withdrawals from their bank account, the possible removal of their driving licence or even forced entry to their home by the DWP.
The Bill will give increased powers to access private bank accounts. This requires careful consideration from a civil liberties perspective. However, the DWP already has the power to compel third parties to share data where criminal activity is suspected. The new powers appear to reduce the need for prior evidence and simply grant access at will. Given that access to banking information is estimated to recover just 1.4% of the Government’s annual loss to fraud and error, do these powers of forced withdrawal represent a proportionate action? Before introducing new powers, it might make more sense for the Government to increase the efficacy of existing requirements on third parties to report suspicious activity, and for HMRC to share banking data on an annual basis.
The Government have asserted that the Bill will save the public purse £1.5 billion, but in the absence of an impact statement, how do we know? If the DWP is to have the power to take people’s money, suspend driving licences and enter homes, we should at least be very confident that it is worth it. In particular, we need to be sure that the savings predicted do not come from the blameless victims of departmental error, as happened with the carer’s allowance overpayment scandal. It is of huge importance that fraud be reduced, but until we are sure that we have learned the lessons of the past, we run the risk of damaging people’s lives for insufficient benefit. We are at risk of making the same mistakes again, but with fewer checks and balances.
The sentiment of the Bill is welcome, but there are risks attached. I am concerned that it builds a narrative that assumes that the claimant is the guilty party, when it could be the Department that is at fault. I therefore call on the Government to apply all possible care before launching new regulations that, at present, would amount to a matter of trial and error.
Paula Barker (Liverpool Wavertree) (Lab)
I recognise that fraud exists across the public sector and that it is wholly right for any Government to track down the fraudsters, the criminal gangs and those who cheat the system at the bottom as well as the top—we have heard about the VIP fast lane—but I hold deep reservations about the unintended consequences of the Bill in its present form.
We have heard some very constructive contributions this evening from Members across the House. I thank my right hon. Friend the Secretary of State, who is always accessible and has been willing to listen to my concerns and those of my many constituents who have got in touch to express their views. Although she has allayed some of my fears, I did let her know that I would raise my concerns in the Chamber today.
First, the Bill needs to make a greater distinction between fraud and error. We cannot accept a situation in which our constituents are being accused of fraud on the back of genuine personal errors. I know at first hand from my experience as a constituency MP that the Department is more than capable of making glaring errors of its own, and people suffer greatly as a result. The welfare system is not an easy one to navigate; people should be supported when problems arise, rather than there being a natural presumption towards guilt. Many organisations that have been in touch with hon. Members share this fear, so it is essential that the Government address the point head on.
Other aspects of the Bill sit very uneasy with me. The Government already have the powers, under existing legislation, to investigate those who are suspected of fraud. That raises the question why the Bill is needed. It feels like a hammer to crack a nut.
After the second world war, the Attlee Government set about establishing a welfare state as a safety net for those who were genuinely in need. The Attlee Government took responsibility for looking after the wellbeing of all their citizens from the cradle to the grave. Worryingly, there now seems to be a determination to transform the British welfare state into a system of mass surveillance.
I will be grateful if the Minister responds to the following points. First, although I acknowledge that the Secretary of State spoke about this at the Dispatch Box, what provisions are being made in respect of proper oversight of these proposed new powers? How would any financial institution navigate data protection conflicts between the Government and its customers? How would data security risks be mitigated?
During an iteration of the Bill introduced by the last Government, the Equality and Human Rights Commission called for it to be scrapped. A legal opinion from Dan Squires KC and Aidan Wills found that the powers in the previous iteration were likely to breach UK article 8 privacy rights protected in the Human Rights Act. Can the Minister tell us what legal advice the Government have received on the proposals in the Bill?
I have serious concerns that assertions and decisions on individual cases, if automated, could lead to Horizon-style injustices if the necessary steps are not taken to put the right safeguards in place, alongside measures to guarantee some level of transparency and accountability when mistakes arise. We are looking at a hugely significant change to our welfare system, at a time when the Department is responsible for record underpayments. Surely that should be a Government priority, rather than further upheaval of a system that threatens to further stigmatise those who legitimately rely on the welfare state.
There are low levels of fraud in the benefits system. The latest Government figures put it at 2.8% of total benefit expenditure, which translates to overpayments due to fraud recorded at 3.7% in the financial year 2023-24. Although it is right and proper to look at ways to reduce that figure, politicians in this place have a responsibility to make it clear at every opportunity that any such move, especially one as far-reaching as this, is intended to target a small minority of criminals. The constituents I support often tell me that the services they interact with, and by extension the Department, tend to view them with suspicion and lack of empathy. The Bill must not be used to entrench such attitudes.
For the British public, whether they are in work or out of work, life is getting harder. Rampant inequality has broken our economic model, while the 1% continue to squeeze the rest. I very much hope that the Bill will not end up punishing the wrong people, making those inequalities even worse. I look forward to Government Front Benchers engaging with those who express legitimate concerns today and during the Bill’s parliamentary journey. I will not oppose its Second Reading, but I will work constructively with colleagues across the House to table amendments in Committee that alleviate my concerns and those of right hon. and hon. Members.
Jo White (Bassetlaw) (Lab)
In Bassetlaw, most people work hard all their lives, pay their dues and want to live comfortably. They keep themselves to themselves, whether in Worksop, Harworth, Retford or the villages, but what unites them in anger is the known benefit fraudster who lives down the street. I have lost count of the number of times I have heard the rage, the sense of injustice and grievance that benefit fraud is happening on their doorstep, and that nothing seems to be done about it.
With billions of pounds of public money lost last year, we welcome this Bill in Bassetlaw. At long last, it is the start of real action against the fraudsters and those milking the system, whether they are workshy or feeding the coffers of organised crime. This legislation will give the DWP new anti-fraud powers, for the first time since the Tony Blair years, bringing it into the digital age.
I welcome the new search and seizure powers, bringing the DWP into line with HMRC’s investigative powers—seizing luxury goods, bags of cash and mobile phones to use as evidence of fraud, and taking active control of investigations into the criminal gangs that are defrauding the taxpayer. If that means raids, let it crack on.
I welcome the new, stronger powers to pursue those who receive money that they are not entitled to. Where they refuse outright to repay, it is right that their driving licence should be removed. Banks and building societies flagging fraud, such as long-term trips abroad or wages going into an account while benefits are also being claimed, is also welcome.
Although the Government will at last be tough on fraud, the new powers will include strong safeguards to ensure that they are used appropriately, protecting the vulnerable and the sick. The message from today is that if you are living off the wages of fraud, we are coming to get you. If you have nothing to hide, you have nothing to fear.
That is why I back the Bill’s additional measure to pursue those who ripped us off during covid, including the previous Government’s greedy friends who grabbed the PPE contracts and the fake company owners who took the business loans. We will not allow time limitations to act as a barrier. We want our money back and the thieves jailed, and we want anyone who lined the pockets of their mates to feel the long arm of the law.
I cannot abide the thought of my constituents’ hard-earned money funding the luxury lifestyles of the fraudsters. Labour is the party of working people, and this Bill puts our values into action. This Bill is all about fraud. It is the start, not the end, of stamping out corruption, insider dealing and the defrauding of those who strive and save by working hard. This is the start of resetting broken Britain.
Mr Luke Charters (York Outer) (Lab)
Thank you, Madam Deputy Speaker. Last, but I hope not least.
Before entering this place, I spent a lot of my career tackling fraud. One key trend in fraud is its increasing sophistication. Rather than the art of a local chancer, fraud is increasingly conducted by organised crime groups using elaborate mechanisms, deeply advanced technology and rapidly shifting modus operandi. That includes benefit fraud gangs. I am sorry to say this, but fraud in the benefit system has reached an industrial scale. Frankly, it is time the Government got a grip, which is why I welcome their swift action in introducing this Bill.
My right hon. Friend the Secretary of State wrote an excellent op-ed today highlighting this exact point. This is the money of many hard-working Brits, and it has been stolen from right under their noses. The Tories presided over a system that allowed criminals to line their pockets at taxpayers’ expense.
Paula Barker
My hon. Friend is making a passionate speech, and he talks about benefit fraud on an industrial scale. Does he really believe that just over 2.5% is an industrial scale?
Mr Charters
As I will come to, it is about the advanced techniques that these fraud gangs are using. It is industrial-level criminal activity.
Last year, £7 billion was cheated out of taxpayers’ pockets, and we have been left to clean it up. If we had that cash, we could have funded extra police officers or vital repairs to some of our hospitals. Frankly, it would also have made it easier to fill the £22 billion black hole left by the Conservative party, wherever its Members are.
I now turn to a few concrete examples of why this Bill matters. First, on the economics, the Bill is expected to save £1.5 billion over the next few years. These are not insignificant sums of money. It is important to stress that the public purse is not an endless pot, and the contributions of millions of working people across the country, including many of my constituents in York Outer, help to fund it. They want to see taxpayers’ money being spent wisely. Stealing benefits is not just fraud; it is a slap in the face to the hard-working taxpayers who fund our public services. This Bill changes that.
The Bill is not just about keeping more taxpayers’ cash in the Treasury. As Brits, we embody the values of kindness, decency and fairness. Although we are rightly outraged about criminals circumventing our system, we all want a reliable welfare state for the people who truly need it. Every £1 stolen by benefit fraud gangs is £1 less for a low-income single parent looking for a job on universal credit, £1 less for a disabled person on the higher rate of PIP, and £1 less for someone on carer’s allowance. In many cases, these payments are a lifeline for people getting back to work. At the moment, this cash is going to criminals rather than carers.
I now turn to a few recent cases of organised benefit fraud to elucidate the scale of the challenge we face. All have been settled and are now in the public domain following prosecutions.
In May 2024, we saw the largest benefit fraud case in history. The operation saw five Bulgarian nationals forge thousands of documents to make thousands of fraudulent universal credit claims to the value of £50 million.
In October 2023, seven people were sentenced for falsely claiming employment support allowance. They used advanced techniques to hijack identities, resulting in the crime group stealing hundreds of thousands of pounds.
An investigation by City of London police in 2020 saw enforcement against a benefit fraud ring to the tune of hundreds of thousands of pounds. I take a brief moment to praise the excellent work of our law enforcement agencies, including City of London police, who I have met, for their collaboration. That is exactly how the last fraud ring was closed. This example shows the benefit of public-private partnerships, which this Bill seeks to catalyse, in tackling benefit fraud,
What do these cases have in common? The benefit fraud was actually a predicate to other illicit activities. They demonstrate the need to upgrade our response, and this Bill represents additional lines of defence in our rising to the challenges we need to fix. Some of the measures in this Bill will do exactly that: supporting covid-era fraud investigations; strengthening the PSFA by establishing it as a separate entity; giving the PSFA powers to compel evidence and enter premises with a warrant; extending the time limit to bring action against historical fraud to 12 years; and granting extra powers for recovering money.
I recently visited the national economic crime centre at the National Crime Agency, and I know the scale of the challenges we face when it comes to tackling fraudsters. I have no doubt that, with this Bill, the Government will smash the benefit fraud gangs, but we must also acknowledge that this Bill represents a significant shift for the financial industry. It is a step into a new dawn for those in the banks who work on tackling economic crime, as they will be spending more time tackling benefit fraud.
It is right that the Government are pursuing a growth-first strategy, which has to be carefully balanced with the economic crime plan. The Financial Conduct Authority’s new consumer duty was an important stride forward for the industry, and I was proud to play a small role in that, but, as scrutiny of the Bill continues, I warmly invite Ministers to engage with the FCA and report back to the House on how the new powers will carefully balance consumer vulnerability with the need to drive down benefit fraud.
Finally, there is an important scenario that must be considered more carefully as the Bill progresses in this place. A victim of domestic abuse—let us call her “Jane”—is quietly saving money to escape, but then an account information notice is issued. Based on three months of bank statements, a debt recovery notice follows. Jane has 28 days to appeal, but no access to legal advice. Worse still, her abuser intercepts the letter and her savings, which are her lifeline to escape, are seized. Her escape plan is exposed, putting her at risk. We must ensure that financial processes do not accidentally or invertedly work against victims of domestic abuse in those scenarios, as I am sure Ministers are aware.
To close, the Prime Minister said in a speech at a recent Labour party conference:
“If we want to maintain support for the welfare state, then we will legislate to stop benefit fraud”.
When it comes to tackling organised crime groups, not only is he right, but the Bill is proof he is delivering on his promise. The Bill is about smashing the benefit fraud gangs, treating taxpayers’ money fairly and ensuring we have a safety net left for the genuinely vulnerable people who need it. I refer time and again to a point I made in my maiden speech that rings as true today as it ever has done. I said:
“I want to ensure that there is no safe harbour for fraudsters, no compromise in our pursuit of their schemes and no escape from justice.”—[Official Report, 17 July 2024; Vol. 752, c. 124.]
Rebecca Smith (South West Devon) (Con)
It is a pleasure to wind up this important debate on behalf of the official Opposition. It has been a really interesting debate, with some strong views expressed by Members from all parties, and the disagreements did not necessarily come from where we might have been expected. In fact, it seems the official Opposition and the Government are more in agreement than anybody else.
The hon. Members for Oldham East and Saddleworth (Debbie Abrahams), for Torbay (Steve Darling), for Clwyd North (Gill German), for Doncaster Central (Sally Jameson) and for Strangford (Jim Shannon) all spoke. My hon. Friend the Member for Mid Leicestershire (Mr Bedford) made some very valid points. At the end of the debate, the hon. Member for York Outer (Mr Charters) made an interesting point about the connection between the Bill and violence against women and girls, which will be important to consider in Committee. Passionate views were raised by the hon. Members for Brighton Pavilion (Siân Berry) and for Aberdeen North (Kirsty Blackman), and the hon. and learned Member for North Antrim (Jim Allister). It has been an interesting debate all round.
Before I start, I want to reflect on some of the comments made about covid. As has been made clear, the Bill is in two parts: one part is about the Cabinet Office and the increasing powers, and the other is about the benefit fraud challenges facing the DWP. The previous Government, particularly when my right hon. Friend the Member for Richmond and Northallerton (Rishi Sunak) was Chancellor, saved a huge number of businesses through the bounce back loans and jobs through the furlough scheme, and provided initiatives like the kickstart programme. Without those, even more people would have needed to claim from the DWP. The National Audit Office has said that there is no evidence of ministerial involvement in improper procurement or contract decisions, so it is important to make that point for the record.
As we have heard, the measures in the Bill are a continuation of much that the previous Conservative Government were implementing before the election was called, but it also contains some concerning extensions to the powers of the new Government. A pattern is emerging: the Government pick up our previous work, quietly remove some of the more sensible plans, and add some ill thought out plans of their own. My hon. Friend the Member for Faversham and Mid Kent (Helen Whately) highlighted our record in government of tackling fraud in the welfare system and fighting public sector fraud. Members on the Government Benches seem to have forgotten that record but, in good faith, I will assume that is error rather than fraud on their part. It has been a few hours since my hon. Friend shared that record, so allow me to recap.
Before the pandemic, we worked hard to secure near record low levels of fraud and error across the DWP welfare and tax credit systems. We knew the stress and anxiety experienced by those who had been overpaid, we were hunting down those who were deliberately misappropriating the system, and our actions were making a difference. However, given the amount of Government support provided during the pandemic, it is not surprising that individuals and groups sought to exploit the emergency situation we all faced.
In response to that, we published our “Fighting fraud in the welfare system” paper in May 2022. That crackdown led to a 10% reduction in fraud and error, and £1 billion saved through dedicated counter-fraud activities. In addition, an estimated further £1.35 billion was saved between 2023 and 2024. Our ambition did not end there. Last May, we published a further paper, “Fighting fraud in the welfare system: going further”, which set out plans to save an additional £9 billion by 2027-28 by cracking down on benefit cheats. During the debate, we heard about the Data Protection and Digital Information Bill, which was the precursor to part 2 of the Bill before us. Furthermore, our proposed fraud Bill would have aligned the Department for Work and Pensions with HMRC, enabling us to treat benefit fraud in the same way as tax fraud, giving investigators new powers to make seizures and arrests.
All that is before we look at our record of tackling public sector fraud, as additionally included in this new Bill. Our taxpayer protection taskforce secured about £1.2 billion, which was either blocked from being paid out or recovered through our compliance work. We set up the Public Sector Fraud Authority, whose powers are being extended in the Bill, to work across Government to reduce fraud against the public sector. Its first-year target was £180 million, which was smashed with savings of £311 million.
Our risk, threat and prevention service was the first in-house fraud squad of its kind in the world when set up in 2023. Working across Government, it set out to ensure the public purse was protected at key points, as new spending programmes or policies were announced. Why was that important? We know that between 2023 and 2024 alone, the Public Accounts Committee has found that nearly £1 in every £15 was either error or fraud. That is an eye-watering amount of taxpayer money, as the vast majority of Members would agree. The ambition of the Bill for a more powerful Public Sector Fraud Authority could lead to about £54 billion being recovered from public sector fraud in 10 years, which is a welcome figure.
However, the Government could be doing more. We have heard how the taxpayer simply cannot afford the Government to stop here—more action is essential. The new Government’s inaction to date in reforming health and sickness benefits is estimated to have cost the taxpayer approximately £1.8 billion since July 2024, which is around £266 million every month. Instead, the new Government have gone after pensioners, employers and farmers, actions they were ready and waiting to take without delay. Yet here we are, seven months into a new Parliament, with not a peep on how they will reform the benefit system, other than repeating that they will come up with a plan soon. Indeed, they had 14 years to come up with that plan. Every day Labour ducks the tough questions, the benefits bill continues to grow.
However, taking a step back, it is important to remember why we have a benefits or welfare system in the first place. I am sure that across the House we are agreed that it is morally right for the state to provide for the most vulnerable—those who, through no fault of their own, need financial support to provide for themselves or their family. In debating the Bill, it is easy to forget that, in the majority of cases, beneficiaries of additional support from the state claim it simply to get on with their lives, and they are not a cause for concern. However, as the title of the Bill suggests, there is a need to recover public money that has been claimed either in error or because of fraud—as a result of an innocent mistake or with deliberate intent. This is, after all, as we have heard multiple times, taxpayers’ money that has ended up in the wrong bank account. That needs rectifying, which is why, as we have already made clear, we support the Bill in principle.
My hon. Friend the Member for Faversham and Mid Kent set out a number of questions, which I hope the Minister will address shortly in his summing up. Unsurprisingly, we remain concerned about the final details of the legislation and the huge absence of a plan to tackle the rapidly rising benefits bill. However, we look forward to debating the details of the Bill further in Committee shortly, and working cross-party to ensure that further progress is made. First and foremost, we must see money from the public purse fairly and squarely in the hands of those it is intended for, and not in the hands of the fraudsters working to line their own pockets.
The Parliamentary Under-Secretary of State for Work and Pensions (Andrew Western)
I hope that the House will bear with me; I have binned my original closing speech, given the number of contributions that we have heard, and some of the legitimate questions and concerns that colleagues have set out. I thank those colleagues who rightly highlighted the scale of the challenge, and why the Government must act to tackle fraud against the public sector. My hon. Friends the Members for Burnley (Oliver Ryan), for Clwyd North (Gill German), for Hendon (David Pinto-Duschinsky), for Doncaster Central (Sally Jameson), for Bassetlaw (Jo White) and for York Outer (Mr Charters) all set out the scale of the challenge, and the views of their constituents on this issue, in very robust terms.
I agree with my hon. Friend the Member for York Outer about the risk of unintended consequences, particularly on the issue of violence against women and girls. We are looking at that closely and will continue to do so. A number of Members referred to the alleged lack of an impact assessment, or the publication of one. An impact assessment has been published, alongside the view of the Regulatory Policy Committee, and is available for colleagues to view.
Let me turn to specific concerns about the Bill, starting with those of the shadow Secretary of State, the hon. Member for Faversham and Mid Kent (Helen Whately). I welcome the tone of the Conservatives, and their broad support for a number of the principles in the Bill. She is correct that it is incumbent on the state to get its money back. It is part of the unwritten contract that she referred to. I felt there was a slightly tenuous justification for the escalation in benefit fraud that we have seen in recent years: the war in Ukraine. I know that we are happy to blame Putin for many things, but that was a new one on me. She rightly pointed to an escalation in benefit fraud and error as a result of covid, but that does not explain why the level of fraud and error in the Department for Work and Pensions was higher in 2023-24 than in any of the years from 2021-22 onwards—£9.7 billion last year, a record level. The issue is getting worse, not better, and that happened on the Conservatives’ watch.
The shadow Secretary of State suggested that the contents of the Conservatives’ fraud plan would have solved all these problems, and that we are copying much of what was in it. It is fair to say that the Conservative party legislated only on the third-party data measure in that plan. The Conservatives never mentioned debt recovery powers, and made no efforts to get a grip on public sector fraud with the new powers that we are introducing by putting the PSFA on a statutory footing. Overall, their appalling record hardly comes as a surprise.
The shadow Secretary of State went on to say that she was concerned about the amount of information being shared by banks. Just to be clear, we will not be sharing any information with banks. The information that will come back to us will have very strict criteria, and we are taking a specific power to fine banks for oversharing information that is out of scope. She asked what testing has been done on this; two trials have been undertaken, so we know that the proposal will work, as it pertains to the eligibility verification measure.
The shadow Secretary of State went on, with some audacity, in my view, to challenge whether the debt recovery powers go far enough—powers that the Conservative party refused to take, and never put forward when they were in government. She mentioned the number of AI schemes that have been set aside. Test and learn is perfectly normal in the AI space. I remind her that some of the schemes that had not been taken forward are now moving through under different names. She mentioned the PSFA, and raised concerns about the right to compel information. The powers have independent oversight to ensure that their use is proportionate, so although no organisations are exempt, all actions are considered within a robust legal framework.
We then heard from the Conservatives, astonishingly, that there is nothing in the Bill to get a grip on the benefits bill. What cheek, when the benefits bill spiralled by some £20 billion on their watch! As for their so-called plan, I remind the shadow Secretary of State that they made a hash of it and that we lost a judicial review on their failed plan just a few weeks ago, so we will take our time to bring forward the proposals and will consult on them, and we will get this right.
I am grateful for the support of the Conservatives, but I hope that it will manifest itself in the voting Lobby later because, with the exception of the hon. Member for Mid Leicestershire (Mr Bedford), who I believe is the Parliamentary Private Secretary, we have not had a full speech from a single Conservative Member—just one intervention. If that does not show the lack of seriousness with which they take this issue, the appalling record and position we have inherited should do just that.
I want to spend a little time on the comments of the Chair of the Select Committee, my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), who is a champion for vulnerable people. I particularly want to speak to the measures we are taking to assure ourselves of the appropriate support for vulnerable people, both within the scope of the Bill and more generally, because that is important and relates to a number of comments from Members. It is always the Department’s priority to set repayment plans that are affordable and sustainable; that we make use of the debt respite service, Breathing Space, which allows for a temporary protection from creditors; and that we provide additional support to help customers manage their money. We work with the Money and Pensions Service under its brand name “Moneyhelper”, which offers free, independent and impartial money and debt advice. Indebted customers are routinely offered a referral, with the majority who meet the criteria taking up that offer.
In addition, a DWP debt management vulnerability framework has recently been introduced to provide guidance for advisers on how to support customers at risk of becoming vulnerable, including signposting to specialist support. That is embedded across debt management, and part of that involves advisers undertaking annual refresher training on identifying and supporting customers experiencing vulnerability. Within the scope of the Bill, it is important to recognise that the power of debt recovery will not be used on benefit claimants. It extends only to those who receive their income through means other than benefits or through payrolled employment.
There are also important safeguards in the Bill that govern the process of debt recovery and the new enforcement powers. There will be repeated efforts at contact before any enforcement action is taken, and there will be affordability checks before any deductions are taken from bank accounts. There will be limits on the size of those deductions, a right to require deduction orders and a right to appeal deduction orders beyond that. Also, the DWP can vary or suspend the deduction order following a change in circumstances.
Kirsty Blackman
I appreciate that the Government have made changes around affordability, but they still do not assess either benefit clawbacks or the deductions on the basis of whether they are actually affordable for the people having to pay them back. Are the Government planning to put that in place at some point in future?
Andrew Western
The hon. Lady will forgive me if I have not understood her correctly, but there is specific provision in the Bill on the debt recovery powers to limit the amount that can be clawed back to 40% of anybody’s capital, but if I have misunderstood that, I am happy to have a conversation with her afterwards. I hope that I have set out some of the steps we are taking in the Bill and more broadly to ensure support for vulnerable people.
The Liberal Democrat spokesperson, the hon. Member for Torbay (Steve Darling), was right to highlight the scale of covid fraud and the lack of safeguards in place to protect the public purse. He highlighted the carer’s allowance review, which will report this summer, not next, but we are already learning the lessons of that. Much like the proposals in the Bill, data is key, so we have secured funding to extend the verify earnings and pensions service system of alerts from HMRC to 100% of claims. We will ensure in this Bill that the eligibility verification measure information is processed quickly to reduce large overpayments, and to avoid a repeat of what happened on the last Government’s watch with carer’s allowance.
The hon. Member for Torbay raised the use of AI, as did my hon. Friend the Member for Oldham East and Saddleworth. There will always be a human decision maker on each of these powers, so where decisions are made, a human—not AI—will make that call. For EVM, a flag would be passed to a human to establish benefit eligibility. For debt recovery, it would be passed to a human to assess vulnerability and the ability to pay. For information gathering, it would be passed to a human for investigation where there is a suspicion of fraud. For search and seizure, a warrant would be granted by a judge. At all times, a human is making those decisions, as is right and proper, given the powers that we are talking about.
According to the hon. Member for Mid Leicestershire, there is no doubt that had the Conservatives had longer, their policies would have driven fraud down further and faster than our proposals will. Thankfully, we do not have the opportunity to test that theory. Given their appalling record—with fraud and error escalating every year since the pandemic and standing at £9.7 billion last year—I dread to think what they would have done when they turned their attention to these matters.
The hon. Member for Mid Leicestershire went on to ask whether the independent person would report on the use of powers. Yes, and those reports—on both the PSFA side and the DWP side—will be placed before Parliament annually. He asked about non-drivers and the point of suspending licences when not everybody drives. Well, short of taking the power to prevent somebody from walking, I fail to see how much further we could have gone in that regard. However, I recognise—as I hope he does—that that is only one of a suite of measures that we are considering to move us forward in the powers available to us.
Of course, it is important to recognise that the introduction of an independent person was not considered necessary by the Conservative Government in the third-party data measures that they proposed under their Data Protection and Digital Information Bill. We are introducing that measure not just for the PSFA powers or the eligibility verification measures, but for information-gathering powers and powers of search and seizure.
I understand that the hon. Member for Brighton Pavilion (Siân Berry) is concerned, but I fundamentally disagree with the idea that it is conservative to want to tackle benefit fraud, and that we should ignore the £7.4 billion-worth of welfare fraud last year. I certainly do not think that it is conservative to go after public sector fraud; in fact, if it were slightly more conservative, we might not be in the terrible position we are in now.
My hon. Friend the Member for Normanton and Hemsworth (Jon Trickett) raised a number of important questions. Time prevents me from running through them all now, but I would be delighted to meet him to discuss them further. I was especially concerned by the case that he raised. One potential benefit of the eligibility verification measure is that it will allow us to detect overpayments earlier, but clearly we want to ensure that the DWP is handling such issues correctly first time. The ICO was mentioned by a number of Members, including my hon. Friend. Just to clear that up, it was not a letter received into the Department; the ICO published on its website today its findings and thoughts on the Bill at this stage. It recognises the steps that we have taken on proportionality, and I welcome those comments.
The hon. Member for Brecon, Radnor and Cwm Tawe (David Chadwick) has concerns about banks and the potential erosion of data protection powers—that is not my view. The Bill will involve very limited data sharing. The Department for Work and Pensions is not monitoring accounts, and we will fine banks if they overshare in that space.
The hon. Member for Aberdeen North (Kirsty Blackman) made an important contribution. To clarify, the Bill is not predicated on saving £10 billion in welfare fraud; it sets out to save £1.5 billion over five years, but it is part of overall measures to save £8.6 billion over that period, because we do not accept the level of fraud in the system at present.
The hon. Member for Coventry South (Zarah Sultana) suggested that the Bill subjects millions of people to unwarranted financial surveillance. To give Members absolute clarity, we will not receive transactional information from banks, we will not look in bank accounts directly, and we will not ask banks to take decisions on whether somebody has committed fraud.
The hon. and learned Member for North Antrim (Jim Allister) raised the question of clause 50 on the PSFA side of the Bill and asked what constitutes fraud. For clarity, it is standard for powers to be taken by the Secretary of State—or a Minister in this case—but in practice, qualified and experienced decision makers will consider cases as authorised officers.
The hon. and learned Gentleman went on to raise clause 91 and the removal of driving licences. I would gently say to him that this is an existing power held by the Child Maintenance Service. The question of liable persons and whether removal is proportionate would be a matter for a judge; it would only happen after repeated attempts to secure repayment, and before any disqualification occurs, an individual will always be given the opportunity to agree a repayment plan. This is a power of last resort, but I assure the hon. and learned Gentleman that if he has specific concerns about the pursuit of fraud in Northern Ireland, I am happy to follow them up.
As always, the hon. Member for Strangford (Jim Shannon) spoke from the heart about the plight of his constituents and the challenges they face. I want to assure him that this is not a Bill that is intended to focus on the low-hanging fruit of vulnerable people; that is why it includes some of the protections I set out earlier, and it is why we are putting in place independent oversight for the debt recovery and eligibility verification measures. He asked about the right of appeal, and I can confirm that the rights of review and of appeal against a ruling in the debt recovery space are written into the Bill.
The important question of appointees is one that I want to address directly, given the point that the hon. Gentleman raised about his constituent’s sister. To be very clear, that is something we had significant concerns about after the previous introduction of the third-party data measure, and the system will remove appointees. There may be circumstances in which those bank accounts need to be checked if the appointee receives benefits themselves, but if they do not, they will be screened out.
Kirsty Blackman
The individuals who are going to do the independent assessment will be appointed by the Secretary of State. Would it not be better for Parliament to agree the appointment of those individuals, so that we can be assured that they are actually independent?
Andrew Western
Clearly, we will inform Parliament as to who that will be, but we will go through a proper recruitment process. If the hon. Lady is talking about the independent person to be appointed for the eligibility verification measures, we will go through a thorough recruitment process to ensure they have the expertise needed. They will report every year to Parliament, and it is right and appropriate that they do so.
I thank my right hon. Friend the Member for Hayes and Harlington (John McDonnell) for his support for part 1 of the Bill, but I understand his concerns about the powers as they pertain to the Department for Work and Pensions. One of his principal concerns was about banks perhaps being unable to exercise those powers appropriately; what we are proposing is not intended as a decision-making action, but as a data push. Banks will not make decisions—a human within the DWP will carry out that investigation. He has raised concerns about potential errors in the system, and to be clear, we acknowledge that this is a new power. We intend to scale it up in a “test and learn” phase, doing so gradually so that we can get it right, but we simply cannot ignore the problem and not look to take these powers when we had a £7.4 billion problem with fraud in the DWP last year.
Turning to the hon. Member for Horsham (John Milne), I think I have already dealt with the issue of carer’s allowance overpayments and how we are starting to put that right. To clarify again, we are not accessing bank accounts; banks will be doing that for us, but they will not be taking decisions as to somebody’s benefit eligibility. The hon. Gentleman said that we should look at the efficacy of existing powers to request information. We are doing that through the updating of information-gathering powers and the right to compel information digitally. We will be moving to a list of excluded organisations, rather than a list of organisations from which we are able to compel information.
My hon. Friend the Member for Liverpool Wavertree (Paula Barker) raised a series of concerns, which I know come from a good place. I am very happy to meet her to discuss some of these powers—it is important that we get this right—but on the particular question of the legal advice and article 8, although she is correct that Big Brother Watch did commission some legal opinion, we are confident that the powers in the Bill are compatible with the European Convention on Human Rights. They are different powers, distinct from the third-party data powers put forward as part of the Data Protection and Digital Information Bill, and we do think that they are compatible with the ECHR, including the right to a private life under article 8. That is specifically because the third-party data elements are now narrower, and because we have included the safeguards that I have set out. We think the measures are justified in accordance with the law and are proportionate.
The final speech was from the Opposition spokesperson, the hon. Member for South West Devon (Rebecca Smith). Again, I felt it was constructive, if slightly fantastical at points, and I may disagree about the extent to which the Conservatives had more sensible plans that have since been abandoned by this Government. On the question of public sector fraud, I note that she pointed to action to be taken to try to claw back public money. Can I suggest to her that they seek to put that in a press release? If they are not enough of a laughing stock because of their previous behaviour, they would be after seeking to claim that they had a positive story to tell in that space.
I will finish by reiterating the comments of my right hon. Friend the Secretary of State: whoever you are—big businesses, covid fraudsters, organised criminal gangs seeking to defraud the system or individuals knowingly cheating on their benefits—it is not acceptable. We have a major problem, and we are taking the powers needed to act.
Question put, That the Bill be now read a Second time.
Public Authorities (Fraud, Error and Recovery) Bill (Programme)
Monday 3rd February 2025
(1 month ago)
Commons ChamberPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text
Public Authorities (Fraud, Error and Recovery) Bill (Money)
Monday 3rd February 2025
(1 month ago)
Commons ChamberPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text
Public Authorities (Fraud, Error and Recovery) Bill (First sitting)
Tuesday 25th February 2025
(1 week, 3 days ago)
Public Bill CommitteesPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 February 2025 - (25 Feb 2025)
The Chair
We are now in public session and proceedings are being broadcast. Before I begin, I remind Members to switch their electronic devices off or to silent. Tea and coffee are forbidden. Date Time Witness Tuesday 25 February Until no later than 10.10 am Professor Mark Button, University of Portsmouth; Dr Rasha Kassem, Aston University; Professor Michael Levi, Cardiff University Tuesday 25 February Until no later than 10.30 am Cifas Tuesday 25 February Until no later than 11.00 am Kristin Jones; NHS Counter Fraud Authority Tuesday 25 February Until no later than 11.25 am Money and Pensions Service Tuesday 25 February Until no later than 2.30 pm National Audit Office; HM Revenue & Customs Tuesday 25 February Until no later than 2.50 pm John Smart Tuesday 25 February Until no later than 3.10 pm UK Finance Tuesday 25 February Until no later than 3.30 pm JUSTICE Tuesday 25 February Until no later than 3.50 pm Public Sector Fraud Authority Tuesday 25 February Until no later than 4.10 pm Big Brother Watch Tuesday 25 February Until no later than 4.40 pm Campaign for Disability Justice; Greater Manchester Coalition of Disabled People Tuesday 25 February Until no later than 5.00 pm Department for Work and Pensions; Cabinet Office
We have three motions to consider: the programme motion on the amendment paper; a motion to enable the reporting of written evidence for publication; and a motion to allow us to deliberate in private. In view of the tight timetable, hon. Members may wish to take those motions formally, without debate.
The Minister will move the programme motion standing in his name, which was discussed by the Programming Sub-Committee yesterday.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 25 February) meet—
(a) at 2.00 pm on Tuesday 25 February;
(b) at 11.30 am and 2.00 pm on Thursday 27 February;
(c) at 9.25 am and 2.00 pm on Tuesday 4 March;
(d) at 11.30 am and 2.00 pm on Thursday 6 March;
(e) at 9.25 am and 2.00 pm on Tuesday 11 March;
(f) at 11.30 am and 2.00 pm on Thursday 13 March;
(g) at 9.25 am and 2.00 pm on Tuesday 18 March;
(h) at 11.30 am and 2.00 pm on Thursday 20 March;
2. the Committee shall hear oral evidence in accordance with the following Table:
3. proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 7; Schedule 1; Clauses 8 to 69; Schedule 2; Clauses 70 to 74; Schedule 3; Clauses 75 to 77; Schedule 4; Clauses 78 to 90; Schedule 5; Clause 91; Schedule 6; Clauses 92 to 98; new Clauses; new Schedules; Clauses 99 to 104; remaining proceedings on the Bill;
4. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 20 March.—(Andrew Western.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Andrew Western.)
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Andrew Western.)
The Chair
We are now in public session and proceedings are being broadcast. Before we hear from the witnesses, do any hon. Members wish to declare interests that are pertinent to the Bill?
Michael Payne (Gedling) (Lab)
I would like to declare an interest as a member of both Nottinghamshire county council and Gedling borough council, which are both responsible for administering benefits.
Michelle Welsh (Sherwood Forest) (Lab)
Mine is exactly the same: I am a member of Gedling borough council and Nottinghamshire county council, which have responsibility for administering benefits.
Rebecca Smith (South West Devon) (Con)
In the same vein, I am a member of Plymouth city council.
Neil Coyle (Bermondsey and Old Southwark) (Lab)
I am a trustee/director of Southwark Charities, which provides accommodation for some older people who may be affected by the provisions of the Bill—a cursory reference, really.
Examination of Witnesses
Professor Mark Button, Dr Rasha Kassem and Professor Michael Levi gave evidence.
The Chair
Q
Professor Button: Good morning, everybody. My name is Professor Mark Button. I am co-director of the Centre for Cybercrime and Economic Crime at the University of Portsmouth and I have been researching fraud-related issues for nearly 20 years.
Dr Kassem: Good morning, everyone. I am Dr Rasha Kassem, senior lecturer and leader of the fraud research group at Aston University. Like Mark, but probably for fewer years, I have been researching all aspects of fraud.
Professor Levi: I am Michael Levi. I am professor of criminology at Cardiff University and I have been researching fraud for 53 years, so I think I win on that score, although that may mean I am very out of date.
Mike Wood (Kingswinford and South Staffordshire) (Con)
Q
I will start by asking the panel a reasonably general question. What, in your experience, are the main limiting factors in investigating public sector fraud?
Professor Button: There is a number of factors. Obviously, the first challenge with dealing with social security fraud and a lot of the rest of public sector fraud is that you have no choice but to deal with those people. It is not like a bank or a private company, which have the opportunity to decide whether to do business with that particular person. In the case of someone making a claim for a benefit, the public sector body has to deal with that person.
You are obviously dealing with increasingly highly organised fraudsters that often operate across borders. That poses significant challenges, particularly for many public sector fraud agencies, particularly when the police themselves have very limited resources. Fewer than 2,000 officers are dedicated to economic crime. They simply do not have the time to help public sector bodies deal with these things. When you look at those particular challenges, having professional capacity within government to investigate fraud with the appropriate powers is a sound basis for dealing with these problems.
Dr Kassem: The capabilities and skills of public authority staff would be a main challenge for me. Do they have the same understanding about what fraud means, its impact, the methodologies and typologies of fraud and the limitations of each type? I ask that because when you talk about fraud, you are talking about fraud committed against the public sector by individuals as well as organisations. The procedures cannot be the same in each case, and the motivations and the resources will not be the same in each case, so they have to have this understanding.
Equally, there has to be an understanding about the differentiation between fraud and error; the element of intent to deceive is the main differentiating factor. Do we have criteria that tell staff in the public sector how to differentiate between fraud and error? Is that agreed upon criteria to ensure that errors are not happening? Are they trained and do they have the proper skills to enable them to investigate without accusing, for example, innocent people and impacting adversely vulnerable individuals? That would be the main challenge, in my view.
Professor Levi: I have one final, quick point, because I know that there are a lot of questions. At one extreme, there is the point that Mark made about organised crime groups and so on, but it is a question of identifying when something is an organised crime activity, which you can only do easily either by getting intelligence or by correlating claimants’ data to build up a pattern, as in covid-19 fraud schemes. At the other extreme, there is what is probably the majority—failure to notify a change in circumstance. This has always been the most common part of the area covered by the Department for Work and Pensions. As far as the Public Sector Fraud Authority goes, I think it is a question of identifying a lot of internal cases from people that you would not ordinarily suspect.
Mike Wood
Q
Professor Button: One of the key things is always resources. If you look at the size of the PSFA at the moment, in terms of the scale of fraud, and look at some of its estimates, you see that this is substantially more than the estimates of fraud in the DWP, so having a relatively small unit, as proposed, is, I think, a limitation. For me, the key thing is having the appropriate resources within that unit to have a real impact on fraud. That question, “Is there enough there at the moment?”, is a key one.
Dr Kassem: Although I believe that this is a very positive step and definitely will enhance accountability, several things need to be considered. To start with, the definition of fraud can be a bit limiting in the current Bill, because, first, it assumes that fraud is happening for financial reasons when that is not necessarily the case. There are non-financial motives. Let us consider insider fraud—fraud committed by insiders, people working for the public authorities—which is one of the most common threats not just in the public sector, but across other sectors. A disgruntled employee can be as dangerous as someone with a financial motive. So I would stick with the Fraud Act 2006 definition of fraud, because it mentions personal gain full stop. It can be financial and it can be non-financial. That has to be clarified.
There is also the difference between fraud and error. I know that intent is mentioned—rightly so—as the main differentiating factor between fraud and error. Again, however, we have to be very clear about the criteria that would enable public sector staff to differentiate between fraud and error, because you do not want them to make mistakes and accuse innocent individuals of committing fraud, just like what happened in the Post aOffice scandal. That would cause further reputational damage to the Public Sector Fraud Authority and the public sector in general, so they have to be very careful about the criteria, which have to be agreed upon.
This is the second area that I want to talk about: because there is a difference between fraud and error, the recovery and the procedures, in terms of perpetrators committing fraud versus those committing an error, need to be clarified in the Bill. I do not think that that is clear enough at the moment.
The third point is about understanding the very nature of fraud—the fact that fraud can be committed by individuals and organisations. The policies and procedures that will be followed when you deal with fraud committed by individuals should not be the same as those that are followed when you deal with organisations. For example, if you were to take preventive measures, the procedures would be different for organisations versus individuals. With organisations, you are talking about controls, compliance measures and so on. That has to be clarified in the Bill—how fraud committed by organisations will be dealt with versus fraud committed by individuals.
Lastly, I would like to raise the possibility of abuse of power. Again, although the PSFA has greater intentions of preventing fraud, you want it to appear to the public that there is less risk of abuse of position. The oversight board will be very important there as an independent body, and perhaps it could be a board independent from the PSFA staff who oversee the work. For this to work, there have to be proper governance structures, including independent board members who have proper fraud expertise and understand the limitations and the mission of the public authorities. It will be very important for public authorities to report on their operational performance to enable that independent board to oversee properly.
Professor Levi: I do not quite agree with all those comments. Some of those measures do not need to be in the Bill, but they obviously need to be part of the structure. The Bill will hopefully last for a long time, and I am sure that you are all familiar with changes.
I think the point about the resource is important, but you also need to allow time for bedding in. There is the issue of where they will recruit staff from, and how experienced they are in actually dealing with stuff. I remember the Assets Recovery Agency, which was a stand-alone body. It was closed down because it did not recover as much as it cost at that time, as there were so many appeals. This is not quite analogous with that agency, but one needs to remember that it takes years to develop skills in actually handling cases. I do not think that is so much a question of the limitations of the Bill but a warning about not expecting too rapid results. Obviously, the practitioners and policymakers may offer a different view from mine, but I think it takes quite a long time. When I reviewed the Serious Fraud Office for the royal commission in 1992, I saw that gaining expertise in actually dealing with stuff takes quite a while, and some would argue that it has not yet done that.
Mike Wood
Q
Professor Button: With any kind of initiative like this, you will always get a degree of displacement. The clever fraudsters will find new means to get around the rules. Obviously, a lot of these measures are directed at the more opportunistic individuals who are not as well organised and probably do not invest as much time in looking for means to get around some of those measures. For that client group of offenders, the Bill will be quite effective. However, for the more organised offenders, particularly the more organised crime elements, they will find ways to get around some of these measures.
Professor Levi: I am not clear about the provisions for international linkages in the Bill. Perhaps that is something that just needs to be sorted out afterwards, but people need to be able to chase money overseas. The question about who does that, and what they need to do before they are able to do that, is pretty important. This is not so much in covid-19 frauds, because that has already happened, but a lot of these things are time critical. The asset-freezing orders that were granted to the police in 2017 have proven very effective, so we need to think about what processes there are for dealing with stuff rapidly.
Dr Kassem: I have one final point. I raised the issue of differentiating between fraud committed by individuals and by organisations. I think that needs to be sorted in the Bill, not afterwards. For example, from a governance perspective, the Bill says that you can access banks accounts and freeze assets, but whose? Are you going to take the assets from the organisation, the directors running the organisation or the fraud perpetrators inside the organisation? This has to be sorted, because you will face another issue, at least in courts, about who is the controlling mind in the organisation. The organisation has a mind of its own legally, and therefore cannot be treated in the same way as when you deal directly with individuals. If that is sorted, there will hopefully be a higher probability of recovery and fewer loopholes in the Bill.
Professor Levi: There is also the question of legal aid for those suspected or accused who have to take some measures to appeal. I was not clear about that, although it may be my fault.
Neil Coyle
Q
Professor Levi: I am not sure that it needs to be in the Bill. Definitions of what we mean by “organised” are typically vague. An act committed by three or more people for the pursuit of profit is a very low bar for organised crime. A fraud by one person can be perfectly well organised, but they are not part of an organised crime group. In policing, we talk about organised crime activity and people normally think about organised crime groups. That is a definitional problem that may be too much for the Bill in its present form, and indeed for Governments. They certainly need to think about what conditions apply to which people, and I am sure they have. I am not sure whether that constraint needs to be in the Bill, but Dr Rasha may have a different view.
Dr Kassem: For me, when I talk about fraud committed by organisations, it does not have to be organised crime. It could be a legitimate organisation defrauding the public sector. Again, the Bill mentions things around recovery, such as accessing bank accounts and seizing assets—how would they apply in cases of organisation versus individual? That needs to be thought about carefully in the Bill. Again, when you think about the nature of fraud and who is committing it, you are talking about different powers and different motives for individuals versus organisations. There are different assets and different ways of recovery. They are not the same, and therefore that has to be clarified in the Bill.
Neil Coyle
Q
Dr Kassem: It depends on whether they have knowingly done that, because the differentiating factor between fraud and error is the intent.
Neil Coyle
Q
Dr Kassem: Yes, in terms of the intent, because errors could happen. The differentiating factor between fraud and error is the intent to deceive. The example you mentioned could be error or fraud, depending on the intent to deceive. There must be clear criteria in the Bill to at least guide staff in the public sector to differentiate between fraud and error.
Neil Coyle
Q
Dr Kassem: It could be, yes.
Professor Levi: I agree.
Neil Coyle
So does that distinction need to be in there—that there needs to be the flexibility to treat this on an individual basis?
Professor Button: I was just going to say that my son recently reached 18 and went to university, and my wife received a letter saying something like, “Unless you have these circumstances, you have to positively say that they are staying on in further education.”, so there would be a clear misrepresentation there, I think. There would not be any opportunity for an error in that particular example, based on my experience with my son.
Neil Coyle
But what if the 18-year-old went into work? The point is that the onus is on the individual to make clear the change in circumstances to the Department, but the Department also has the opportunity to question. In your case, you are showing that the Department has done that.
Professor Button: They sent a letter, and you had to fill in a form to say that your son was staying on in further education in order to continue receiving payments.
Professor Levi: Yes, to reduce the fudge. It is sometimes difficult to see how there can be a legitimate explanation in the case that you are rightly using, but there must be a possibility of arguing. I am not sure myself that that needs to be in the Bill—that is a matter of criminal law, which the Bill does not seek to change in this case—but, in most departmental behaviour, they will adjust. Mark’s son’s case is a perfect example; the Department has clarified so that, if the family had continued claiming under those circumstances, it would be clear that they had committed an offence.
Neil Coyle
Q
Professor Levi: I am enthusiastic about the extension of the 12-year limitations; I think that is very sensible, particularly in view of the length of time that has elapsed since covid-19. But I am not sure how you would insert something in the Bill that would enable it to be varied. Presumably Parliament would like to see those proposals before they are approved, but there is an issue about parliamentary time—or it could be done through supplemental issues.
But I think it is right. Very few people can envisage the future. Look at the impact of technologies in our time. People will find ways of getting around things that you have not thought of yet, so that is pretty normal.
The Parliamentary Under-Secretary of State for Work and Pensions (Andrew Western)
Q
Dr Kassem: There are lots of definitions talking about fraud, including lies, cheating and misrepresentation for personal gain, but my point is that personal gain can be financial or non-financial. The Bill specifically mentions financial gain, but what would you do if you had a staff member working for a public authority who, for example, allowed unauthorised access or shared information out of revenge? There is no financial gain in that case. Would you treat that as fraud?
Andrew Western
Q
Dr Kassem: Yes, I have seen that in the literature, but not in practice yet. I think the way to go forward with that is by education and raising awareness about fraud and its impact, because those individuals committing fraud do not see the harm there. They see the Government as having lots of money in a rich country. They see themselves as entitled as well—more than others—and they take their fair share, or they might do it out of revenge, ideology or coercion, perhaps. There are lots of motivations for them to do that. Educating them about why this is wrong and what would be the consequences of committing fraud can help to reduce fraud over the long term and raise awareness about it. Equally important is training staff in public authorities about fraud, what it means and how to detect it. Prevention is better than a cure. Again, those have to go hand in hand. Yes, there has to be an investigation and a deterrent to discourage people from doing it, and this Bill is an excellent step in doing so.
However, if you produce the Bill, with untrained staff members who are not able to identify fraud criminals individually or organisationally, it will not really work. Preventing fraud requires a holistic approach. You cannot focus on prevention alone or on enhancing accountability alone, or on deterrence or investigation. Everything needs to work together, and education plays an important part internally in public sectors and externally across the public.
Professor Button: I have recently done some research where we replicated a study from 10 years ago. We sought a representative sample of the population and their attitudes to various deviant behaviours, including benefits fraud, and we found there was a significant decline in honesty. I think there are changes that are particularly pronounced among younger people. It has been driven by a whole range of factors, not least it is much easier to be dishonest now. If you go back 20 or 30 years, if you wanted to apply for a loan or a credit card you had to go to a bank. Now you just do it online on a computer. It is much easier to engage in dishonest behaviours in those types of ways.
The other thing is that social media and different types of forums provide opportunities for people to discuss how to engage in dishonest behaviour. I am doing some research at the moment about online refund fraud. We have been going into forums where a wide range of individuals discuss how to defraud retailers and get refunds for stuff that they have bought online. I strongly suspect that that kind of thing is probably also going on for benefits fraud. All of those factors are making it much easier, so I think there is a much more significant challenge for not just the public sector, but private sector organisations in dealing with fraud because of that.
Professor Levi: There is a lot of scope for unchallenged behaviour. Who gets challenged by people? If you do not have face-to-face relationships, the opportunities for moral education are much fewer. Personally, I think there needs to be a lot more in schools, but there is a lack of capacity in the schools curriculum for that kind of thing. Also, there should be more about how to avoid being a victim and discussions about money muling and so on. There is a broader spectrum of behaviours where people can get involved in fraud that we need to look at collectively.
The Parliamentary Secretary, Cabinet Office (Georgia Gould)
Q
Professor Button: If you look at this in the broader context of hybrid policing bodies, which is one of my areas of study—non-police bodies that engage in a whole range of enforcement functions—what is being proposed in terms of the accountability of this body compared with, say, the Health and Safety Executive, the Gangmasters and Labour Abuse Authority and some of the many other different types of enforcement bodies is certainly on a par with, if not better, than some of those organisations, with the inspection, the complaints body that people have access to and the additional measures in place.
One of the crucial areas is obviously when you get to prosecutions. With the Post Office scandal, we have seen the challenges if you have too much control over prosecution as well. The Department for Work and Pensions does use the Crown Prosecution Service, but with the lesser sanctions, it might be an issue to have more accountability, where you have that situation, to avoid excessive use of those penalties in a very negative way. That is possibly the only area where I would see an issue. Otherwise, the accountability measures are very similar to the many other hybrid enforcement bodies that central Government have.
Georgia Gould
Q
Professor Button: Yes, I think that does. That is fine.
Professor Levi: His Majesty’s inspectorate of constabulary and fire and rescue services has been pretty tough on fraud policing by the police, so I am personally encouraged by the proposal for accountability and review by them. It is reasonably rigorous and scientific, and there is the National Audit Office as well. Following on from Professor Button’s comments, sampling behaviours at all levels is a good methodology for testing. The question that Dr Kassem was raising earlier about the internal stuff and the supervision of that is a more complex example.
Dr Kassem: My suggestion was more about having an independent oversight board—independent from the PSFA—to review the work and also perhaps to support an independent audit of the operation and see whether the Bill is actually working in terms of recovery and of transparency and fairness. Someone might say, “Okay, we need someone from the PSFA on the board to feed back about operational tasks and challenges and so on.” That is fair enough, but that could slightly reduce the independence that we are talking about. It can still produce a report to describe the work, the performance and the challenges that it met, and a completely independent board can then oversee the work and challenge and scrutinise it if needed.
Georgia Gould
Q
Dr Kassem: Yes.
Georgia Gould
It is really reassuring to hear that because oversight is incredibly important to us. I have one more question, but I am happy to give way to others.
Andrew Western
Q
Dr Kassem: Personally, I would recommend a board rather than an individual, because how sustainable could that be, and who is going to audit the individual? You want an unbiased point of view. That happens when you have independent experts discussing the matter and sharing their points of view. You do not want that to be dictated by an individual, who might also take longer to look at the process. The operation is going to be slower. We do not want that from a governance perspective—if you want to oversee things in an effective way, a board would be a much better idea.
Professor Button: The only thing I would add on the DWP is that it is likely to be much more resource-intensive. There are likely to be a lot more cases. Having an appropriate capacity is important for that.
Professor Levi: I agree with that. Historically, in relation to asset forfeiture, say, the problem has been one of excessive caution rather than too much activity. A lot of legal challenges remain. I was on the Cabinet Office Committee that set that up, and there can be too much governance of that, so there is a tension between having a lot of governance in place and saying, “Look, can we get on with it?”
Rebecca Smith
Q
Professor Button: It is important to tackle those areas. I am not sure whether it is something that needs to go in the Bill. I think it is more an issue of giving the body the capacity to go after those types of individuals and to work with other relevant policing agencies— I suspect that that would need to be the case—to deal with it, rather than saying such things in law. We have the Online Safety Act 2023, which covers a lot of areas. Is that useful enough? Are the Fraud Act 2006 and the historical offence of conspiracy to engage in fraud appropriate, or do we need to create a new, specific offence of, say, promoting social security fraud online? I would not like to comment on that; it is probably something that needs more thought. The key thing is more enforcement, and disrupting forums where that kind of discussion is taking place.
Professor Levi: There is also the issue of signalling to people where the boundaries lie. This is an issue not so much for the Bill, but for enforcement practice across the board. We need some condign activities that communicate to people via social media, as well as in the old media that we may read, what is acceptable, and what is and is not legal. The National Crime Agency has been pretty good about that in the cyber-crime area, in trying to educate people and to divert them away from crime. There are some good lessons across that. It is also a question of resource and how many such things people can deal with.
Georgia Gould
Q
Professor Levi: The Americans used to be better at this than may have been the case in the past few weeks. The General Accounting Office and some of the inspectorates general in the US have been pretty active, but the US still had a huge amount of covid-19 fraud. Australia is getting better. Clearly, the head of the Public Sector Fraud Authority is part of this group of people trying to improve things, but I would say we are starting at a pretty modest level, in terms of numbers of people. In terms of the DWP, it is a struggle for everyone. We have to look at it in relation to general welfare. I remember going to a meeting and talking to some French delegates who said to me that it was about—
The Chair
Order. That brings us to the end of the allotted time for this panel. I thank the witnesses very much for their evidence. We will move to the next panel.
Examination of Witness
Helena Wood gave evidence.
The Chair
We will now hear evidence from Helena Wood, director of public policy and strategic engagement at Cifas and a fellow of the Royal United Services Institute.
Mike Wood
Q
Helena Wood: I find it quite difficult to comment on that, given that we are yet to see the code of practice. A lot of burden has been placed on that code of practice as it stands to build in some of that proportionality. I know the Government have committed to consulting on that code of practice forthwith, but without seeing that, a lot hinges on how those powers will be used in practice. Without that being known to me at present, I would quite like to see something pulled up on to the face of the Bill to build in proportionality by design.
Both on the PSFA side and the DWP eligibility verification powers, the Bill is a very blunt instrument, as it stands, and I think the law would do well to pull up those proportionality measures on to the face of the Bill. We have to look at this Bill in its broader context: very much unintentionally, it stands at that ideological debate between the rights of the individual to privacy and the rights of society as a whole to benefit from the funds that are available to fund essential public services. We have to deal with both of those arguments with due caution and due respect. As it stands, the Bill tends to be quite blunt in the way things are proposed on its face, and I would like to see a lot more from that code of practice and how it will be built in.
Beyond that, I would like to see a lot more about the people who will be using these powers. Again, we trust the police to use their coercive and intrusive powers based on their skills, experience and training. At the moment, there is a reasonably low bar set in the legislation, which is merely to be a higher executive officer or senior executive officer—a very entry-grade civil service officer. Other coercive powers that we can see across areas I have studied over the course of a 20-year career, particularly the Proceeds of Crime Act 2002, require some professional skills: where one is not a police officer, one must be a trained financial investigator. It is a trained and accredited role that is overseen by statute. Here, the competence of the individuals using that power, and the trust we can thus place in them to use those powers proportionately, is quite limited.
Mike Wood
Q
Helena Wood: It depends which part of the Bill we are talking about. This is a game of two halves: some of the PSFA powers, for example, mirror powers that are used almost as standard across the landscape of counter-financial crime, and I think we can be more comfortable about the use of those powers. The power I have more concerns about is something that is very new and incredibly intrusive, and without limitation to it being a civil or criminal investigation: the DWP eligibility verification powers. There, we need to proceed with more caution about how they are used, given that this is very much at risk of being a blanket, phishing-style power without any recourse to the limitations and the bars that others have to reach to use other powers that would be either a civil or criminal investigation. I think that part of the Bill requires a little more thought and proportionality pulling up front, unless the Government can bring forward that code of practice to allow those of you around the room judging this Bill to see what will be in the code to limit the use of those powers to the highest risk of high-end investigations, rather than making it a blanket power.
Mike Wood
Q
Helena Wood: Absolutely. The concerns I have around those powers are about collateral intrusion. We can all agree that the quality of data both on the DWP side and on the part of financial institutions is not always as good as it could be. I completely agree with the need to minimise the level of information that those institutions give back to the DWP, to caution against unnecessary intrusions upon privacy, but I would like to see a minimum standard of data match that would be required to take action on that data. If the banks are only giving a minimum amount of information back into the DWP, how do we know that that is an absolute specific match on the individuals they have on their system? Without seeing information about how that will be acted upon in the code of practice, I am slightly cautious. We need to see that detail earlier rather than later, for you to be able to make that judgment about the risk of unintended consequences of this legislation.
Let us again look at this in its broader context. This is a very intrusive power, but it sits in a suite of other measures and powers available to investigators across the system. What we do not want to do with this power is to bring those other powers into disrepute. We have to apply it with due caution, making sure that a match is a match. I would like to see which specific data points will be available to the DWP investigator to ensure this is a match and to minimise the risk of collateral intrusion.
Andrew Western
Q
Helena Wood: That is a very good question. It goes back to the balance between individual rights to privacy and society’s rights as a whole. Only you can make the decision about where that balance falls. Going back to the previous question, I would like to see built into the oversight of the use of the power a specific requirement for the independent reviewer to look at instances of collateral intrusion and where mistakes have been made, and to report on those to Parliament. If we can build that into the code of practice—forgive me for keeping on going back to that code, but I think a lot of the use of this power hinges on how it will be used in practice and by whom. We need to build some significant guardrails against that.
The second point I would make is that to my knowledge, this is an unprecedented power internationally, so how can we be sure it is going to be effective in practice? We know, for example, that individuals rarely have one bank account in one institution any more. In fact, numerous pieces of research—forgive me; I do not have the figures in my head, but I can refer those back to the Committee—show that individuals now have masses of bank accounts across five, six, seven and up to 10 or 20 institutions. By targeting one institution, are you really going to get a full picture anyway? If this is to be proportionate, we have to be clear that intrusion is proportionate and is going to be effective in practice. I am yet to see the evidence that it is, if it is used in a scattergun way. That is why it would be great to build into the code of practice something much more targeted around risk. For example, high-risk postcodes coming through in intelligence around organised crime attacks on the benefits system might be one way to look at this.
Andrew Western
Q
My concern is about broadening the scope. We have taken significant steps, when set against previous proposals in this area, to narrow the scope of the Bill. For instance, we are initially looking only at the three benefits where we see the highest levels of fraud and error. Universal credit is obviously principal among those.
Does the work that we have done to narrow the scope reassure you at all when you look at the Bill—for example, the removal of the state pension and the restriction to only one financial institution? Clearly, without that, we would have to look at every single bank account in the country in detail and investigate why every single person in the country has £16,000, if we are unable to see across the full range of bank accounts that they have.
Helena Wood: Absolutely, and I will answer that question in two parts. If we compare this Bill with the predecessor Bill that was put forward by the previous Government, the concerns have been listened to. There is much more significant oversight and much more limited scope. If we look at that in comparison with the predecessor Bill, that is absolutely true.
On the second part of your question, you make a very good point that this is not always organised crime. I would build on the point made by my predecessors in giving evidence that this is absolutely what we would refer to as a first-party fraud-driven approach. At Cifas, we run a fraud behaviours survey every year, questioning individuals about their general attitudes to fraud—individual-level fraud—and we see those numbers ticking up year on year about what individuals deem acceptable. Your point is well made and fully made about the rising levels of first-party fraud. We do have to look at it as both a first-party fraud and an organised fraud response.
Andrew Western
Q
Helena Wood: A really good point was made, and others who follow me in this Committee’s evidence sessions will make it as well: fraudsters rarely simply defraud the public sector or the private sector. It is often the case that those with a propensity towards fraud will look at any channel through which they can gain financial benefits.
This is very much a narrow-facing Bill, but we have to look at it in its broader context. I would question whether DWP could be doing more to share information with the private sector, using existing powers to do so. There are plenty of voluntary information and data-sharing schemes available to which DWP is not plugged in. It would complement this particular power to be able to layer the data picture and the intelligence picture, and not just look at this single piece of information in isolation. There will be a number of data points across the private sector that you could gain through voluntary data-sharing schemes that DWP is currently not engaging with.
Rebecca Smith
Q
Helena Wood: Absolutely; the point was well made in previous evidence that the police simply do not have the resources to look at fraud against consumers, never mind to support DWP, so I think it is entirely necessary to extend those powers of search and seizure to DWP as well. Again, I keep coming back to the broader context: there are other powers. We should not assume that this Bill is the sole answer. It has taken a very civil lens, quite necessarily, on what is a huge-volume crime, which cannot be dealt with simply through a criminal justice response alone. We have to save that criminal justice response for use in a surgical way, for the really high-end cases, particularly in an organised crime sense. We should not be seeing it as an either/or.
What I would not like to see from this is the replacement of the necessary deterrent of a criminal investigation and prosecution with pure use of civil measures. We need to use that full suite of powers beyond this Bill, including those in existing legislation, such as the Proceeds of Crime Act 2002, and standard issue fraud criminal prosecutions. Something that I would like to see from the independent oversight is that we do not lose that criminal thread. We have to keep prosecuting where necessary, and providing that necessary deterrent through all the available means, not just the ones available in this Bill.
Georgia Gould
Q
Helena Wood: This is a really necessary approach. However, I would caution that we are holding off from establishing the PSFA as a statutory body for now, and I completely understand the reasons for that: we are in a very tight fiscal environment, the cost of setting up a new agency is substantial, and we need to test the competence of the PSFA in doing so. However, I think in due course we need a more fixed timeline to move the PSFA off into a statutory body, to at least remove any perception—if not actual political interference—in investigations. That is really important—we need a stronger timetable. I know that will happen when the time is right, but I would like to see a stronger timetable towards it. I think there will be at least a perceived risk of Executive overreach if the PSFA does not move in that direction more quickly.
Georgia Gould
Q
Helena Wood: There is a question of “Who guards the guards?” in some respect. This Bill has significantly built in oversight; I think at every step we see that. However, it depends who the independent chair is, and a question would be whether that individual could be subject to a parliamentary approval process, as other oversight positions are—particularly if we look at the National Audit Office model, for example. It might be good to build in a parliamentary approval process for the individual who will take that role.
Georgia Gould
Q
Helena Wood: That is a really good question, which deserves more considered thought. These are people who have not gone through the police training process, for example.
I wonder if it is worth considering whether we make use of the powers contingent on being a financial investigator, as accredited under the Proceeds of Crime Act. However, I make that suggestion with some caution, knowing that in a practical sense there is a national shortage of financial investigators across the country. We are haemorrhaging these individuals; we train them up in the public sector and they go straight out to be poached by the financial sector, and probably to respond to some of these measures set out in the Bill. I say this with some caution, however, as that is a properly accredited and overseen process of skills. We need to look carefully about who exercises those powers and whether they need to do an analogous police training programme. I think there is some consideration of the professionalising investigations programme, although they cannot be officially credited over time—they will not be using the powers as frequently as that process would require.
Those are the parts of the Bill I would like to see strengthened in some way. It is perhaps incumbent on the Government to look at what the other routes are beyond a financial investigator to ensure the right level of competence in using what are very intrusive powers.
Andrew Western
Briefly, on the question of efficacy and scale, His Majesty’s Revenue and Customs has powers at the moment to request information from banks en masse. Given the experience we have within Government of doing that, and from what I can see, the lack of problem with it, I wonder whether you feel—
The Chair
Order. Alas, that brings us to the end of the allotted time for the Committee to ask questions. On behalf of the Committee, I thank Helena Wood for her evidence. We will move on to the next panel.
Examination of Witnesses
Kristin Jones and Alex Rothwell gave evidence.
The Chair
We will now hear evidence from Kristin Jones, formerly of the Serious Fraud Office and the Crown Prosecution Service, and from Alex Rothwell, chief executive of the NHS Counter Fraud Authority. For this panel, we have until 11 o’clock.
Mike Wood
Q
Kristin Jones: I am sure I have the same answer as Helena. Until we see the codes of practice and the operational guidance, it is difficult to tell. Obviously, I have operated in very regulated situations where there has been accountability, but without that extra information, I cannot really say at the moment. But I think it is important that when you interfere with the rights of the individual, decisions are taken at a sufficiently high level by people with sufficient experience.
Mike Wood
Is that your view as well, Alex?
Alex Rothwell: I would echo Kristin’s thoughts. I suppose there is not necessarily anything novel in the Bill. Those powers exist elsewhere, so we have seen them in operation. The ability to test and learn, which is baked into the proposals, is very helpful. Importantly, it addresses a need.
Mike Wood
Q
Kristin Jones: Not on the face of the legislation necessarily, but I would perhaps expect certain commitments in debate that the code of practice will cover certain areas.
Mike Wood
Q
Kristin Jones: I do have some reservations about dealing with corporate organisations, as was expressed earlier, because a corporate cannot speak itself; it can speak only through its officers. The Bill only talks about notices; it does not talk about answering questions. It is quite difficult if you are not able to ask an officer of a corporate questions and you have just written answers through notices. I wonder whether there are sufficient powers for dealing with the more serious, top end of public sector fraud.
Mike Wood
Q
Alex Rothwell: Perhaps a good example is that although we believe we are losing something in the region of £1.3 billion a year to fraud, the amount of fraud that is actually identified is relatively low, because a lot of the value we get is from future prevention. For example, in 2023-24, the figure was something like £5.2 million, but we only recovered 12% of that figure. There is a lot more value to be had. The Bill will be incredibly helpful for us to recover more money from people who have been suspected of fraud. When it comes to pursuing criminal justice outcomes in relatively low value cases—perhaps individuals who have taken £5,000 or £10,000, who have been exited through human resources processes or who have simply left the organisation—the Bill gives us an incredible opportunity to recover more funds, and I think we would use it extensively.
Mike Wood
Q
Kristin Jones: My career has been dealing with fraud in the public and private sector, and I think it is important that when fraud is investigated and you discover something that is not in your scope, you are able to communicate it so that fraudsters are tackled, whether that is in the private or public sector. That is my only concern.
Alex Rothwell: The Bill seems pretty comprehensive in terms of our requirements. There are things that I have concerns around, including training—not just of individuals who are exercising the powers, but of those who manage them and set the culture and tone of an organisation and how it is built in. I echo Kristin’s comments about private sector providers. For example, we are increasingly seeing private sector providers providing NHS services, so how would that be exercised? From my point of view it is more about the exercise of the powers than the extent of the powers.
Kristin Jones: The other thing I think is missing compared to when other organisations have been established is that we only talk about investigators. I am a great believer in a multidisciplinary team, with early legal advice, accountancy advice as necessary and financial investigators, but we have an organisation at the moment in which we only define the role of the investigators.
Andrew Western
Q
Alex Rothwell: I certainly echo your thoughts in terms of attitude. We have seen that expressed in a number of different ways through surveys and transparency—the international transparency index, for example. In terms of statistics, we have seen our fraud prevalence rate remain fairly steady over the last five to seven years, but it is a complex picture because I think that we have been increasing our fraud protection measures as well. What we have seen across the board are bitter pay disputes and a sense that contracts do not pay enough. We have extensive provider assurance programmes that are recovering funds through what we classify as error. I do not see any change in that climate necessarily. Opportunities to strengthen prevention, for us, are the most important factor to influence people’s decision making before they commit fraud. So it is a huge concern to me, but not necessarily in terms of statistics.
Kristin Jones: During my career, I have seen sentences for fraud increase dramatically and that sends a clear message but, over my career, instead of only a few people being exposed to fraud, when you answer your telephone, there is a good chance you have a scammer at the other end; it could happen once a week, if not several times a day. If you are being targeted, it could be every mealtime, with the scammer hoping that while you are distracted you will fall for some con. The worry is that the public are exposed so much to fraud that its seriousness gets watered down in their mind. You have these forums where you can recommend how to claim various things from the Government and how to hit sweet spots to get that benefit or grant. So it has changed and perhaps people are not as shocked by fraud as they used to be.
Andrew Western
Q
Alex Rothwell: Data sharing is critical to our ability to prevent fraud. We have a particular challenge in the NHS in that medical records are in a particular category, so we are exempt from the Digital Economy Act 2017. Perhaps I would focus in the first instance on the rich data sets that the Government actually hold and our ability to communicate inter-Department. Those data sets are critical, yet it is still challenging to obtain data. In many ways, the data protection legislation already provides the ability to share information, particularly where fraud is concerned, although the application of it is often quite risk averse. I wish it had been called the Data Sharing Act and not the Data Protection Act, quite frankly.
Kristin Jones: I come from a slightly different angle on this. Having prosecuted for many years and had to deal with the Criminal Procedure and Investigations Act 1996 and the responsibility to gather material and go through it, I think it is important, if you have data, to decide what you are going to do with it. In preparing for this Committee, I looked at the National Audit Office report on carer’s allowance. There you have a lot of data being gathered, passed and, if it is not addressed, discarded. For me it is important, if you gather data, to do something with it. There has been a lot of discussion about error. It is important for the public that, when they apply for something that they may not be entitled to, if that information is held, they can rely on that. If you apply for a passport and you fill the form in wrongly, you do not get your passport. It should be the same in other parts of government. You should be able to rely on the information the state already holds on you. This relates to the point about child benefit.
Siân Berry (Brighton Pavilion) (Green)
Q
Alex Rothwell: In terms of search warrants and physical access?
Siân Berry
Yes. The other powers that you mentioned already exist and are being transferred to a new place where things are conducted. Eligibility verification in the form that it is written is quite novel.
Alex Rothwell: Does His Majesty’s Revenue and Customs not have the ability to conduct those inquiries?
Siân Berry
As inquiries, but the difference is that we are talking about routine use.
Alex Rothwell: More extensive use.
Siân Berry
Yes. Would you care to comment on the eligibility-verification powers more specifically?
Alex Rothwell: I can see why there is concern. People have complex lives—perhaps it is not as straightforward as how much capital is in a bank account at a particular time. I think the powers need to be exercised very carefully. I am reassured by the opportunity to test and learn from the process through oversight, but I do recognise the concerns.
Kristin Jones: I used to be in charge of international assistance when I was at the Serious Fraud Office. One of the difficulties is that whereas other countries have a central bank register or building where you can tackle that and find out all the accounts and individual holes, here we do not. It is more tricky to try to verify financial information because there is no central register.
Alex Rothwell: We were speaking before about whether it is flexible enough to cover future events. The way that we use cash or funds is changing in terms of digital currencies and so on, and the way that people hold value is changing.
Siân Berry
Q
Alex Rothwell: Yes.
Michael Payne
Q
“It is very unlikely that most of the losses due to fraud and corruption”
during the pandemic
“will ever be recovered.”
How far do you agree with that statement? Do you think the new powers for the Public Sector Fraud Authority change the prospects?
Alex Rothwell: I absolutely do think they change those prospects. I was still in law enforcement when covid-19 was happening, and there was an extensive discussion about the police’s ability to support investigations. Frankly, policing had significant challenges with fraud, and still does, in terms of the volume of attacks against individuals and businesses, which made supporting the public sector almost an impossible ask, so I certainly welcome the ability to strengthen the public sector fraud response.
On whether the money will be recovered, there are significant challenges, as I am sure you are aware. It is right to apply a cost-benefit approach as well; although there is a moral imperative, we increasingly look at things in a commercial sense and at whether there is financial value in recovering funds.
Kristin Jones: It is very difficult to get money back from fraudsters, especially where it is organised, because the money disappears into different accounts in different names, and overseas through lots of corporate bodies, so it will be a big challenge. The important thing about this piece of legislation is whether we are future-proofing it so that, looking forward, we can learn from what has happened in the past and not repeat the mistakes.
Rebecca Smith
Q
Alex Rothwell: If we take the view that fraud has already happened—I have spoken about prevention, but once a fraud has happened and we have discovered it—there are increasingly limited opportunities to pursue criminal investigations. Although we maintain a strong investigative capability that deals with more serious types of criminality, we know about the challenges in the criminal justice system—the disclosure burden is high, it is incredibly expensive to run criminal investigations, and often they take eight years or longer to reach fruition—so we are increasingly looking at how else we can deal with fraud when it is presented to us.
In many ways, it is the low-value, high-volume cases that we see that are more challenging, where we are perhaps seeking to recover funds from someone who has taken £5,000, as I mentioned earlier. This is where I have the most interest in the Bill, because I think we would seek to use those powers extensively, and of course every penny that we recover is money that will be well spent in the NHS. I do not necessarily see any gaps in this particular legislation. There are elements of the work that we do in the national health service where we would benefit from some more powers, but the focus here is obviously on the Bill, rather than on our own ability. A lot of that would apply to how we access medical records, for example.
Georgia Gould
Q
Alex Rothwell: If we look across other international jurisdictions, we see that law enforcement agencies often have quite distinctive public sector fraud or crime functions—for example, the FBI has an extensive healthcare fraud capacity. The way policing has evolved over the last 20 or 30 years, particularly with an emphasis on drug supply, knife crime and firearms, has meant there is little capacity in policing to tackle public sector fraud, and of course there is an ever-present terrorism threat, which is changing rapidly. There is also safeguarding, with the National Crime Agency having quoted publicly the figures in terms of people who are a risk to children, for example.
One of the challenges is that even if you invest more in fraud capability, when a crisis happens, whether that is because of public order or some other form of crisis, policing has to flex more than other investigations. Inevitably, crimes like fraud are perhaps easier to put on hold for a time. Certainly since 2018 we have seen a gradual professionalisation and an increasing capability in the public sector, which I endorse. We could invest more in the police, but my concern is that there will continue to be crises that affect policing that will impact the ability of policing to support the public sector in the way that is required.
Kristin Jones: I agree with everything that Alex just said. The same applies to prosecution: if you have specialist prosecutors, where the resource is ringfenced, they do not get dragged away, but if you have them in with other prosecutors, it depends on what the pressure is at any particular time as to what resource is going to be given to fraud prosecutions.
Gill German (Clwyd North) (Lab)
Q
Alex Rothwell: One thing that we have always struggled to do is put a value on deterrence, because it is quite hard to say categorically that someone has not done something because of a change in approach to something. However, it is my view that, once it is known that there are increased powers in this space and that individuals will be pursued for funds, we will see some behaviour change. We could potentially quantify that, but the challenge is directly relating it to the Bill, particularly if you introduce other measures at the same time. I think there will be a powerful deterrent effect if it is exercised correctly and at scale and the public can see the benefits.
Kristin Jones: I agree. If people know there is an increased likelihood that they will be detected, that will have an effect. It is also important to use similar means to get the right narrative across about what you should and should not be doing.
Georgia Gould
Q
Kristin Jones: We have to plan for emergencies—they will, inevitably, occur—and the work on that should be kept up to date so that you can refer back to one you prepared earlier. That is so important because when there is an emergency, everybody is doing their best to get through it as fast as they can, and that is not the time for slow consideration, whereas having been through that experience, now is the time to reflect and document what we are going to do in future.
Alex Rothwell: Fundamentally it is about the loosening of controls, our understanding of the impact of the loosening of controls, and the friction that is or is not introduced when you are addressing an emergency. We also now have a much better understanding of how that can manifest itself. But I am confident that the Bill would enable an effective response.
Georgia Gould
Q
Alex Rothwell: From my perspective it is the digital footprint that is left and our ability to analyse that at scale. Very few transactions, if any, take place that do not have a digital or electronic footprint of some kind. The data sharing and our capability to analyse that data is the most important factor. The Bill goes some way to addressing that, but obviously elements of the Bill are about responding to fraud once it has happened. That, for me, is the biggest challenge. But on top of that are the safeguards that we put in place to ensure that our interpretation of that analysis is also correct.
Georgia Gould
So the other half—the prevention side—has to accompany this.
Alex Rothwell: Absolutely.
Georgia Gould
I very much agree.
Kristin Jones: Increasingly in society today knowing what the truth is, with the amount of data and false information out there, can be the problem.
Andrew Western
Q
Alex Rothwell: Data analysis has been particularly effective, as has getting better at recording and reporting—for example, we now have a ubiquitous case recording system that exists across the national health service. The greatest value we have seen so far has been in improved data analysis on large datasets that exist on, for example, national contracting. That is where the value lies in future.
Georgia Gould
Q
Alex Rothwell: Yes, it is. As I mentioned, the professionalisation of fraud specialists has made huge inroads in terms of the acceptability of fraud professionals, particularly in a finance environment—we deal with audit committees and so on—and there is also the recognition that the Government are taking fraud seriously. That is not just this Government but the previous one as well. The direction we have had from the Cabinet Office—
The Chair
Order. That brings us to the end of the allotted time for the Committee to ask questions. I thank the witnesses for their evidence. We will move on to the next panel.
Examination of Witnesses
Anna Hall and Christy McAleese gave evidence.
The Chair
For our final session this morning we will hear oral evidence from Anna Hall, corporate director of debt, and Christy McAleese, debt advice strategy and policy lead, both at the Money and Pensions Service.
Rebecca Smith
Q
Anna Hall: A lot of the operational detail of how the powers will work needs to be worked through, and the code of conduct will clearly be extremely important. Already existing in government are the debt management vulnerability toolkit and the public sector economic abuse toolkit, both of which have been set up by the cross-Government and cross-debt advice sector fairness group. We would like to see those existing systems tailored for the Bill and the recovery powers, to make sure that the code is implemented fairly.
There is lots of detail in the debt management vulnerability toolkit. It is about making sure that every individual is treated fairly, no matter how the debt has arisen. Once a debt is owed to Government, we are interested in how someone is able to set up a sustainable repayment plan. How are they able to access free debt advice and get the support they need? Regardless of how the debt has arisen, there is their ongoing expenses, their family, the need to make sure that there are no unintended consequences for wider society and their family, and how that debt is recovered.
Christy McAleese: I agree with Anna. There are possibly also opportunities in the code of conduct to build on some of the good work that the Department for Work and Pensions has already been doing on its ways of working with the debt sector. That includes good and consistent signposting and referrals through to free debt advice if, as seems reasonable, someone who has perhaps been contacted by the Department seeks advice from the sector. There are also some things around the acceptability of the debt sector—the advice worker being able to act on behalf of the person, so third-party forms of authority—and we could look at that. That would streamline the process for the person in debt and make it much easier for the debt sector to work with the Department. There are probably other things in that area.
Rebecca Smith
Q
Anna Hall: We can talk about who should be consulted. Debt advice organisations and consumer groups are important, because they will be the ones that interact with and support individuals in how they set up repayment plans and interact with the debt they owe to Government. At the Money and Pensions Service, we have an adviser panel, whereby we convene the debt advice sector, creditors and everyone who interacts in the ecosystem of debt advice. We can certainly support with that.
We are pleased with how DWP officials have engaged with us so far. They are clearly prioritising the people who are likely to be vulnerable. We work with them on an ongoing basis and expect to continue that through the development of the code of conduct.
Christy McAleese: To add to that briefly, we have a track record of doing consultation exercises in this area, and we have been sharing some of those learnings with colleagues at the DWP. In particular, as Anna mentioned, our debt adviser panel, which is made up of frontline advice workers from right across the sector, has been a valuable forum for us to understand how particular aspects of work that we are doing, and wider Government work, impact on the sector, and particularly on people in debt. Colleagues at DWP have been discussing how they can interact with that panel as part of the process as well, which we would really welcome.
Rebecca Smith
Q
Anna Hall: One thing that we know quite a lot about at the Money and Pensions Service is how people in debt behave. They do not always behave in a particularly rational manner, or in the way that you might expect people to behave, as with all people interacting with systems.
It can be incredibly overwhelming to have multiple debts. If you draw an analogy to other types of debts that people might owe—say, mortgage arrears or rent arrears—the fact that you might lose your home if you do not pay it is obviously an effective deterrent. For some people, those kinds of consequences are an effective deterrent. But we see day in, day out in the services we fund that people leave it right to the last minute before they seek help, and some people do not seek help at all. There can be all kinds of reasons for that. It could be something to do with them—they may struggle with literacy; they may have really overwhelming mental health issues; or it could be that they just do not know what to do. It could also be that they do not know where to seek help from. So I am sure it will be a deterrent for some people, but for other people, deterrents are not really the reason that they do not engage with the system.
We think it is really important that the systems that are set up once a debt has arisen are encouraging and supportive and help people to engage with the Department, so that they can set up an affordable and sustainable repayment plan. That will minimise the number of people who get to that point. We have experience of working with the finance sector and with other Government Departments that are trying to recover debt. If you really focus on being supportive, encouraging and creating the environment where frontline staff are people that you would want to disclose information to, set up income and expenditure, get a signpost to debt advice from and those kinds of things—if that is inherent in the system—you will not need the deterrent very often. There are huge numbers of people who are very vulnerable who have multiple debts, and deterrents are not really the thing that will impact on their ability to engage.
Andrew Western
Q
Anna Hall: We work with the Department in a number of ways. One of the most recent initiatives is working with Jobcentre Plus colleagues to embed the Money Adviser Network referral system into that. That means that where people present at Jobcentre Plus for a variety of reasons and are identified as having some kind of debt or money difficulty, they can either be referred to the MoneyHelper website—that is the Money and Pensions Service website—which has a variety of information on money, debt and pensions, or they can get a referral through the Money Adviser Network to one of our funded debt-advice providers. It is as seamless as possible and it really enables someone who presents perhaps not realising that there is help out there. When someone interacts with a system that they have to interact with, it is great if we can offer a real range of support that allows them to get to debt advice as quickly as possible.
I probably would say this, wouldn’t I, but debt advice can be absolutely life-changing for people? Its impact is huge. One thing we know is that people often do not know that debt advice exists. A huge number of people would benefit from debt advice. They do not know where to look or how to find it and think that is maybe is not for them, and they do not know what will happen when they get debt advice. If you have someone reassuring at the jobcentre saying, “This is a really independent, trusted service and it can help you sort out your financial affairs, and here is a seamless transfer through to that debt advice service,” that can be incredibly effective.
We are working with the Department, in Jobcentre Plus and across the board, on where people are particularly vulnerable and where they really need that support before they can even start to think about finding work or engaging with other things. If you are worried about whether you have food, whether you have money coming in and what you are going to do about the bailiff who is coming to knock on your door, you really need to deal with that before you can look at your long-term future.
The Department and all the officials we have been working with have been prioritising that. Being an arm’s length body of the Department for Work and Pensions is really helpful to make those connections, and embedding debt advice into all those systems has been really welcomed by the Department.
Andrew Western
Q
Can you reflect on the way that we have structured the process for people to engage with the Department when they are notified that they owe us a debt? We have done everything that we can to structure that as a power of last resort. Do you think that that is as robust as it can be with the multiple points of contact, the attempt to agree a sustainable and affordable repayment plan, and the ability, even after we have agreed a deduction, for somebody to come back to the table and negotiate that with us? Is there anything else that you would like to see in that space, or do you think that that is robust in reassuring ourselves that it is a power of last resort?
Anna Hall: It certainly looks that way from the detail in the Bill. As others have said, the code of conduct will be the critical thing. One of the things is that if frontline staff are not picking up vulnerabilities, or they are not trained in how to sort out affordability, in empathic listening or in all the protocols about how to have different types of conversations with people in different types of vulnerable situations—if those things are not in place—some of the processes in the Bill will not be as effective. It comes down to the training for frontline staff, and the capacity and processes to then follow up on what has actually been disclosed, that will enable those repayment plans to be put in place before those later processes. If those are not in place, that could cause some real issues. How successful this Bill is will come down to the code of conduct, as many have said.
Christy McAleese: I agree with what Anna has said. There are probably parallels with what has happened in the financial services sector and changes due to consumer duty and other requirements there. They have found that it is about embedding that culture in frontline staff and recovery staff, and making sure that they are trained effectively. The process on paper needs to be brought to life. We have been assured by the colleagues we have been speaking to at DWP so far that that is in their thinking. They have really demonstrated a willingness with us to learn what they can from how this is approached in the debt advice sector as well. We are reassured on that.
Andrew Western
Q
Anna Hall: We understand the DWP’s intent to ensure that debts can be recovered across all the different groups of people who might owe money. We are really focused on what happens when that debt arises and how people are treated in that situation. It is probably slightly outside our remit to comment on some of what you just outlined, but once the debt has arisen, we would look at how people are treated fairly in that situation across the board.
Christy McAleese: I have nothing to add.
The Chair
There being no further questions, I thank the witnesses for their evidence.
Ordered, That further consideration be now adjourned. —(Gerald Jones.)
Public Authorities (Fraud, Error and Recovery) Bill (Second sitting)
Tuesday 25th February 2025
(1 week, 3 days ago)
Public Bill CommitteesPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 25 February 2025 - (25 Feb 2025)
The Chair
We will now hear evidence from Joshua Reddaway from the National Audit Office, and Richard Las from His Majesty’s Revenue and Customs. We have until 2.30 pm.
Rebecca Smith (South West Devon) (Con)
Q
Joshua Reddaway: I guess I am agnostic as to what is done, but the benefits would be an opportunity for governance and an opportunity for accountability, clarity and transparency. I am sure that we would be absolutely delighted to audit the accounts for the PSFA and help to provide some of that transparency. Of course it is currently incorporated with the Cabinet Office, so it is about a clear line of sight. You have to offset that against the fact that there is an administrative burden for producing things like sets of accounts, and having governance and so on. The bigger question, and the one for the Committee, is whether it will enable better oversight of the powers in the Bill.
Rebecca Smith
Having a separate organisation?
Joshua Reddaway: Having a separate body.
Rebecca Smith
Q
Joshua Reddaway: I do not have a major opinion. I would ask whether you are comfortable with the oversight arrangements. One thing to point out is that this will be the closest thing to an anti-corruption unit that the Government have, with search powers. Are you happy with that being constitutionally in the Cabinet Office or not? I am also interested in what the criteria are. The explanatory notes have set out that there will be an efficiency assessment for the powers in the impact assessment. I am not sure the Cabinet Office is clear on exactly what that means. It is interesting to think about what would actually trigger it to exercise that power under the Bill to create it as a separate body.
Rebecca Smith
Q
Joshua Reddaway: In short, yes. Would you like a longer answer?
Rebecca Smith
That would be great.
Joshua Reddaway: First, we should be clear: with most fraud, once the payment has gone, you are not going to get it back. I have a professional next to me who can talk to you about the challenges and the pursuit, but if you ask how much fraud is out there, the answer is a lot. If you add up all the official estimates from the different schemes during covid, it is £10.5 billion-worth of fraud. The Government have so far recovered £1 billion of that, mostly from HMRC and less from others. Of course, HMRC stopped collecting it because it knew that its resources would have a higher return of investment if they were re-diverted back to tax rather than fraud recovery. I am afraid you are always on to a losing game if you enter the recovery phase, but every million counts. It is always nice to get something back.
The covid counter-fraud commissioner has only just been appointed. Their role is to review these schemes and see whether there is a way to get the money back. My understanding is that the six-year time limit under the Fraud Act 2006 will be expiring next spring so, with that timetable alone, if the fraud commissioner is going to bring forward anything that has a chance of working, it makes a lot of sense to give them a bit more time. Like I say, we are really sceptical that it is possible to get the majority of that £10.5 billion back. Some of it will come back from the bounce back loans anyway, but the vast majority of it has gone. But every million counts.
The Chair
Do you want to add anything, Mr Las?
Richard Las: On the covid side of things, we have not stopped our efforts, but we have recognised that we are not going to pursue it as a lead subject. However, we are conducting other inquiries and looking to other taxes. We will be looking at whether there was fraud under the covid schemes, and we will still be pursuing that. I still have a large number of cases going through the courts or heading towards prosecution in relation to the scheme. A bit like Joshua, I am certainly not giving up on it—we will keep pursuing it—but, in a decision on how we deploy our resources, we are saying, “We’ll look to what we think are the higher risks, and we will pick up the covid risks as and when we come across them at the same time.”
The Parliamentary Under-Secretary of State for Work and Pensions (Andrew Western)
Q
Joshua Reddaway: Specifically, do you mean the EVM—eligibility verification measure—stuff?
Andrew Western
All the powers pertaining to the DWP—the five principal areas in the DWP’s proposals—so information gathering, debt recovery, penalties reform, powers of search and seizure, and EVM.
Joshua Reddaway: Okay. To step back, we have been looking at a general trend of rising levels of benefit fraud for a few years. Actually, it has come down a little since covid, because there was a blip then, but if we take covid out, the levels were rising anyway. Currently, it is more than £10 billion, if you include the bit of benefits that HMRC pays—obviously, that is coming down with universal credit.
I do not think that what is in the Bill will solve that; what is in the Bill will support tackling it. This is about adding a few tools to the DWP toolkit. The key thing is that prevention is better than recovery. DWP is really good—one of the best in the world, as far as we can see—at knowing how much fraud is occurring; I am afraid it is not very good at saying why it occurs. In particular, DWP is not great at saying what it is about the way in which it administers benefits that enables fraud to occur or error to happen.
For some time, we have been advocating for DWP to get a much more granular view of its control environment. I think that, given how I interpret the capital rules here—it is an EVM exercise—it is doing that. This is one of the places where DWP said, “Actually, our control over capital at the moment is, frankly, to ask people how much capital they have,” which left it fairly exposed to the risk that people did not tell them the truth. Several times, the Public Accounts Committee asked DWP if it had the powers it needed, and several times has said, “The one area we need to explore is capital.” The challenge for this Committee is to work out whether that proposal is reasonable and includes enough oversight, given the privacy issues. In terms of there being a real problem behind it, however, I can confirm that there is a control-level issue that DWP is trying to resolve.
The other issues that the Bill tries to deal with on enforcement are similar. If we look at the impact assessment, the EVM was £500 million a year when fully rolled out and operational—that is a significant dent, but only a dent, in the £10 billion. I want to be clear: yes, I do think that there will be an impact. Is it sufficient? No. Is it meant to be sufficient? I doubt it. I think that DWP knows that, and that it has a very hard slog ahead of it. I will try to hold it to account—I am afraid it is your Department—on that hard slog of understanding where fraud is coming in and where error is happening, and put in controls step by step to improve it. There are no shortcuts in that.
Richard Las: My reflection is that fraud is inherently difficult to identify and potentially more difficult to investigate at times. How do you identify fraud? If I think about HMRC, you need information and to be able to triangulate information to understand the risks in front of you so that you can identify the highest risk. Sometimes you will not know what that risk is, or whether it is fraud or error, but it will point you in a direction. I feel that as an agency, if you have fraud, you need a good bedrock of information to understand the environment and to identify risk. A lot of that information can be information you gather from your customer—in our case, a taxpayer—or third party information. It is information that we can use to triangulate and verify. We do that regularly with lots of different information sets.
Once you come to investigate and deal with fraud, it is obvious to everybody, but people do not always co-operate, so you need powers that allow you to compel people to co-operate or powers that allow you to secure information and evidence in a way that you otherwise would not be able to do, because people would not do that. On the general framework, we are always looking to improve our basis for powers and our ability to use them. Certainly I feel that much of what is included in the Bill is powers that HMRC already has in many respects. We use those powers, we would argue, in a proportionate and necessary way, and there are controls and safeguards about how we do that. It is a difficult business with fraud. If you do not have some of those tools at your disposal, you are working with one arm behind your back.
Andrew Western
Q
Joshua Reddaway: Is there an alternative? I am aware that DWP is thinking about open banking as an alternative, but that, of course, would have wider implications and at the moment is on a voluntary basis. You have got that.
I honestly think that it fundamentally comes down to this: if you want to be able to detect, and if Parliament has set an eligibility criterion of capital as part of universal credit and some other benefits, DWP can either use that as a kind of symbolic deterrent so that you can opt out by owning up that you have that capital—that has a use—or if you want it to actually be enforced, you have to provide DWP with a tool that goes a bit further than just asking. There are various ways that you can get data matching from various different partners. This is the one that the Government have come up with.
Andrew Western
Q
Richard Las: It is the Finance Act 2011 that you refer to, which allows us bulk data gathering powers on information that we believe will support our functions. I guess it is not just the banks, but we do get the information on interest-bearing accounts. It is an annual exercise, not a real-time exercise. It is clearly timed in such a way that it helps us understand whether the right amount of tax has been paid on interest that has been accrued. We are talking about large accounts because in most cases people’s interest is quite small, but there will be some people who get a lot of it. We have a huge amount of controls over how we manage that information and how we use it and protect it; they are our normal requirements as with any other taxpayer data.
We gather other information from third parties. We have information from merchant acquirers on transactions that businesses might make, for example. We also have information that we get from online platforms in terms of sales and things like that. It is all part of bringing that information together. HMRC very much respects taxpayer confidentiality and manages that data responsibly. I guess those safeguards can exist in other organisations.
Andrew Western
Q
Richard Las: I do not know, if I am honest, whether there is. I can look that up for you.
The Parliamentary Secretary, Cabinet Office (Georgia Gould)
Q
Joshua Reddaway: I think you are referring to the report we did in March 2023, after the PSFA had just been established. We very much wanted it to be a baseline for the challenges it was trying to deal with. We basically said that there needed to be a cultural change across all of Government, that 84% of the resources were in DWP and HMRC, and that covid really exposed that the Government did not have the capability in other Departments. I have to say that, from our point of view, we saw fraud as essentially a welfare and tax issue for many years, so it was a bit of a surprise to start bringing it out to the other Departments a bit more.
I would interpret the Bill as being about giving the powers, particularly on the enforcement side, and in the meantime, the PSFA has been doing quite a lot on the prevention side. The prevention side is primarily where I would be focused because that is where the biggest gains are to be had in dealing with the cultural changes that are needed across all of Government. Mind you, I do not read the Bill as being against that; I see it as supplementary.
We would be very disappointed if the PSFA became exclusively an investigation and enforcement-type agency. The impact assessment thinks it can get roughly £50 million over 10 years from enforcement. Like I say, every million counts, but that is very tiny compared with the challenge that the PSFA is trying to meet. Is that the sort of thing you are interested in?
Georgia Gould
Q
Joshua Reddaway: It is not rare to find what we call audited bodies, Government organisations, that have found a fraud, have taken it as far as they can through their internal services, and have tried to hand it over to the police to make an arrest—this is the point where it is outside audit—but have not been able to find anyone who will pick up that file, which has been fairly developed. The point that we raised in the 2023 report and that the PSFA was trying to deal with was: how can you get an organisation that fills the gap to help defend the Government when they get attacked? The police are basically going to say that Government are big enough and ugly enough to look after themselves on this.
When we looked at fraud more widely across society in a report that we did later in 2023, we found that at that time it was 40% of all crime and 1% of police resources. That is what you are trying to tackle here. You are trying to have an organisation that fills the gap on enforcement. How important is that? I think it is about having a deterrent, and if you get it right it should also be about root cause analysis. By that I mean, if you have an investigation and you are able to fully investigate it, it is not just about prosecuting that person, but about properly understanding why that happened in the first place, and improving it. So if you are an organisation that is outsourcing an investigation to another party, I always wonder a bit whether they will do that bit of the loop. I am hopeful that the PSFA will develop the capability to do that.
Georgia Gould
That is a very helpful challenge.
Joshua Reddaway: That is my understanding of this. Our one concern is, please don’t let this be the tail that’s wagging the dog.
Siân Berry (Brighton Pavilion) (Green)
Q
Joshua Reddaway: Interesting. The reason we always talk about error and fraud together is because it is often really difficult to differentiate between them when you are doing prevention. So, in my job, I am more interested in fraud and error together because I am more interested in how to correct that and stop the money going out. If you are in Richard’s job, as I am sure he will tell you in a second, he is going to be more interested in the one that you can prosecute—to an extent.
Richard Las: I am happy to jump in from an HMRC perspective. It is important to understand what the driver is—I think that is absolutely right—and to be able to distinguish between fraud and error. We have estimates for fraud and error in terms of the tax system, which we publish every year. We generate those estimates for a lot of different activity, but partly they are the result of our own inquiries, so we are analysing what we do and what we see. We make a judgment—is it fraud, is it error?—and we work out what is going on. Absolutely, you have to look at the underlying reasons, so if there is an error, a repeated error, you ask what is going on there—what is the cause of it? Certainly, as we develop our business in HMRC—especially with people filing online—we are very much looking to prompt people so that they can get the right answer. Those of you who do self-assessment hopefully will see that yourself—“Are you sure? Is this information correct?” That really does help in reducing errors—the simple errors that people might make, because it is complicated.
Siân Berry
Q
Richard Las: Potentially. But it goes both ways, often. Sometimes people overpay as well.
Joshua Reddaway: If you are looking at a particular case, normally the first thing you detect is that it is wrong—the transaction is not correct. You then have to take it to a certain level before you can work out, on the balance of probabilities, what it is. In tax world, is it evasion or avoidance? Then you go down a different route, depending on how you are dealing with it. Obviously, if you want to go for a prosecution, you have to have much more evidence and you have to be beyond reasonable doubt to go there.
I think the reason why PSFA often deals with both is that it is at that earlier stage of dealing with prevention, and it is not always clear which one you are dealing with; besides which, we want to stop error as well. My job is to definitely try to stop both, through audit and accountability. I think where it does not make sense for PSFA to get involved is where that fundamental responsibility for correcting the control environment belongs with the Departments. So if you see that as a, “They have done that triaging; they now think that it’s fraud,” you need an enforcement capability and you go down that route, but I would be very disappointed if that meant in that triage process that an error was not being dealt with. Does that explain?
Siân Berry
Q
Joshua Reddaway: I am saying I do not think this Bill is about that issue.
Siân Berry
Okay. Even with that title?
Joshua Reddaway: Even with that title.
Neil Coyle (Bermondsey and Old Southwark) (Lab)
Q
Joshua Reddaway: On how much fraud is created?
Neil Coyle
Q
Joshua Reddaway: Is this the behavioural effect?
Neil Coyle
Q
Joshua Reddaway: I have not done anything that adds to the information that is already in the impact assessment. I have not audited it, so I would just point to the numbers in there. I know there is an issue around whether people will split their money between multiple bank accounts. Is that also part of what you are referring to?
Neil Coyle
Yes.
Joshua Reddaway: I have spoken to DWP and the OBR about that. My understanding is that frankly it is an area of uncertainty, and that they wanted to make an adjustment because they knew there would be an effect but they do not know what that will be. We will have to come back and see what that is.
For me, the more fundamental point is that this power will not stop all fraud. It is designed to stop some. Will there be behavioural effects that will limit that? Yes. Does that in itself mean you should not try? No.
Neil Coyle
Q
Joshua Reddaway: My first instinct is that I would ask DWP how it was going to do that, because that is how the wonderful world of audit works.
Neil Coyle
Of course.
Joshua Reddaway: Secondly, I would suggest to them that they can establish a baseline, because this is pretty transparent within their published statistics. You have got a breakdown there of how much fraud is caused by people mis-stating their capital. The reason DWP is able to do that is because when you apply for a benefit, you do not have to provide your bank statements, but when you are subject to an inquiry that informs the statistics, you do have to provide your bank statements. The statistic is generated by the difference between those two processes. That will continue to be the case after this power is enacted.
Andrew Western
Q
Joshua Reddaway: I think that is a fair comment, given that I said it does not really deal with error. I was really referring to the enforcement powers under PSFA. I think PSFA do other stuff that is in the error space, but the enforcement stuff is not. The enforcement stuff for DWP also will not really be in the error space. However, you are quite right that any data matching is an opportunity to detect error, and DWP are used to that. For example, when they are doing targeted case reviews, that will be detecting error as well as fraud. What we know from the statistics is that DWP believes there is more fraud than error in that space, but I entirely accept the premise of your question, and I should have made that part clear.
Andrew Western
Q
Richard Las: Ultimately, it allows us to operate immediately and with real clarity. We would be under the same kind of governance and restrictions as the police would be, in terms of having to go to a court to get those warrants, but, in terms of our ability to—
The Chair
Order. We have come to the end of the allotted time. I thank the witnesses for their evidence, and we will move on to the next panel.
Examination of Witness
John Smart gave evidence.
The Chair
We will now hear oral evidence from John Smart, formerly partner for forensics at Ernst & Young, who now sits on the Public Sector Fraud Authority’s advisory panel. We have until 2.50 pm.
Mike Wood (Kingswinford and South Staffordshire) (Con)
Q
John Smart: I think being fully independent would probably be helpful, although I suspect that the realistic impact of that will be more theoretical rather than practical in the short term. Maybe, in the longer term, a fully independent, stand-alone organisation would be much more helpful.
Mike Wood
Q
John Smart: That needs to be determined in terms of the overall governance structure of the organisation, as and when it is set up, because it would clearly need to have an independent board, and some of the oversight powers proposed in the Bill would need to be independent of the management of that business. I think it would require quite a lot of thought around the overall governance structure, the way it operates and the way that the day-to-day management of the business is independent of the oversight powers.
Mike Wood
Q
John Smart: As you say, the nature of the investigations that will be carried out by the PSFA will be quite different from those being carried out by the DWP. Certainly, the proposal in the Bill is that investigations that require some form of search warrant will be carried out with a police officer present, and therefore the powers that are being given to DWP in relation to this Bill will already sit with the police that will accompany any investigators that are doing work on behalf of the PSFA. That is my understanding.
Mike Wood
Based on your experience with the PSFA so far, is that consistent with the length of time that, in most cases, it takes such organisations to reply to requests for information?
John Smart: The consistency question is an interesting one. I think a lot of those powers are likely to be applied specifically in relation to banks and telecoms companies. They already have procedures in place to respond to requests for information, and therefore, in the majority of cases, my suspicion is that those short timeframes will be consistent with what they normally deal with, so there will not be a big onus on them to change the way they normally operate.
Mike Wood
Q
John Smart: They are not, no. I do not know which institutions are likely to be required to provide information. There will be individuals and institutions. Other institutions might find it more difficult, but there is an appeals process, which they can apply to use, in relation to provision of information. If it is unreasonably onerous, I suspect it will mean that the timescale will be varied.
Mike Wood
Q
John Smart: That is true. I have spent 35 years investigating fraud, and the challenge is that there is a need to be reasonably speedy in doing those investigations because, as we heard earlier, any recoveries are going to be much reduced if there is a significant delay in carrying out the investigation and applying for either criminal or civil proceedings to take place. Therefore, speed is important in any investigation. Otherwise, you are spending a lot of time and effort without getting the result you need.
Mike Wood
Q
John Smart: I think weeks is reasonable. A small number of weeks is a reasonable number to look for, rather than days or months. Months is far too long, and days is probably a little too short in relation to the ability of organisations to respond.
Andrew Western
Q
John Smart: At the risk of echoing what has been said before, I think it is critical that we modernise the approach to fraud, and the Bill is a good step towards that modernisation. The critical part of a lot of investigations now—and of identifying, preventing and detecting fraud—is the use of data. Getting that data and information quickly and effectively is critical. I think the Bill will go a long way towards speeding up and broadening the available information that can be used to prevent, detect and prosecute fraud. That is a really valuable thing that we should be pushing for, because relying on pieces of paper to seek information from organisations is crazy in this day and age, when you can do it electronically and get an answer relatively quickly. If you are turning up with a piece of paper, it can take weeks or months.
Rebecca Smith
Q
John Smart: Having worried about this for a number of years, I think there are a lot of steps that the Government—the PSFA—can take over time, but we are on a ladder to get to a position that is constantly moving because the fraudsters are developing all the time. One critical thing that I have been concerned about for a number of years is the use and sharing of data across Government. Government have so much data available to them, and third parties have a lot of data available to them. There is clearly a privacy question that rapidly comes into play, but from my perspective, if the data is available to Government, they should use it. They should use it proportionately: they should not exploit those powers to use that data on some sort of phishing trip, but if there is evidence that fraud is being or has been committed, getting that evidence in the hands of investigators quickly is critical to preventing the fraud from continuing and to identifying and recovering any money that has been lost. To my mind, there is quite a lot of work still to be done on data sharing across Government.
Rebecca Smith
Q
John Smart: Absolutely. There are two points to make. The first is that that frauds that are already happening would be identified if the data was shared more effectively and quickly. Secondly, by joining up data that is sitting in Companies House, the licensing authority, or wherever, you can find evidence that a fraud is being carried out and prevent frauds from happening in the first place.
Rebecca Smith
Q
John Smart: An obvious example is the United States; there is an interesting case in point at the moment, which I have dealt with quite a lot. The US has whistleblower reward legislation in place, which is very effective at flushing out issues affecting payments made by Government. Their qui tam legislation, as it is called, flushes out frauds by incentivising whistleblowers to blow the whistle. It creates a lot of work for various organisations, but it encourages people to think about whether fraud is being committed against the Government in the US. That is an obvious piece of legislation that might be worth considering in this country.
Georgia Gould
Q
John Smart: That is a big question. I have been involved with the Cabinet Office for over 12 years, so the inception of the PSFA came about while I was working there. In the 18 months since it was formed, the PSFA has gone a long way to reach a better understanding of where the issues sit across Government. Clearly, it plays best outside the DWP and HMRC. My passion has been identifying where fraud is taking place, which I have worked on for the past 10 years, and trying to quantify the fraud occurring within Government. As you all know, that is very hard to quantify because it is hidden and therefore unknown. The PSFA has gone a long way and is continuing to flush out where resources should be committed to preventing, investigating and deterring fraud across Government outside HMRC and the DWP. That is critical. When I first started asking Departments where frauds were within the Departments, they replied, “There’s nothing to see here.” At least now, particularly because of the work the PSFA has been doing, there is recognition that there is a real issue to be addressed, and that it is not just expenses fraud, or whatever they used to think it was.
Georgia Gould
Q
John Smart: As we said earlier, the larger organisations will be geared up to provide the information within the timeframe required. Some of the smaller organisations might struggle to meet that 10-day requirement, but I still think it is a reasonable starting point. If you do not start with a reasonable starting point, for the larger organisations you end up deferring decision making and action being taken. I think 10 days is reasonable.
Georgia Gould
Q
John Smart: Exactly. That is the reason for the starting point.
The Chair
If there are no further questions, I thank John Smart for his evidence, and we will move on to the next panel.
Examination of Witnesses
Eric Leenders and Daniel Cichocki gave evidence.
The Chair
We will now hear oral evidence from Eric Leenders and Daniel Cichocki, both from UK Finance. We have until 3.10 pm.
Mike Wood
Q
Daniel Cichocki: A number of conversations with the industry have taken place since the measure was announced. We have been very clear since the announcement was made that we are supportive of the efforts to tackle fraud and error in the public sector. We recognise the scale of the challenge that the Government face, and as a private sector we see clearly the damage fraud does to both the public and the private sectors. We are very supportive of the objectives of the Bill. As you say, the key thing for us as a sector that is heavily regulated, both from a vulnerable customer treatment stance—my colleague Eric Leenders is best placed to talk about that—and a financial crime compliance perspective, is that more detail on the specifics of how the measure will work is still to emerge through the code of practice, but extensive conversations about that are under way.
From the banking industry perspective, we are keen to ensure that the compliance requirements for banks are clear in terms of what information is required. We hope to see in the code of practice, as soon as is practical, details of the specific criteria against which the Government will mandate banks to perform checks under the measure.
Mike Wood
Q
Daniel Cichocki: We are awaiting more detail. We have high-level indicators that the Government are likely to use the measure to require banks to perform checks against, which gives us some sense of the scale. Our initial assessment is that it is likely to be significant, but the key thing for us is to have more details of the criteria that the Government will require us to check against under the measure.
Mike Wood
Q
Daniel Cichocki: It is quite difficult at this stage to perform that level of assessment, partly because so much detail of the measure will be set out in the code of practice. We are obviously very keen to ensure that the expectations of the industry in complying with the new requirement are proportionate, but that is difficult to assess in detail before we have seen the detail of the code of practice. Much will depend on the mechanism through which banks will be required to share the information, the frequency of the information notices, whether the criteria we are required to run the checks against change over time and other factors that will influence how much capacity is required from the banking sector. As I say, at this stage it is challenging to do a detailed assessment.
Mike Wood
Q
Daniel Cichocki: Certainly. The banks share very significant amounts of information with Government Departments and law enforcement to ensure compliance with measures to tackle economic crime. We take that very seriously. We also continue to share extensive information with the Director of Public Prosecutions where there is suspicion of fraud. There is certainly an existing set-up to respond to information requests.
There is a difference with this particular measure, though, and we are keen for it be considered. This request is for information to tackle both fraud and error. A lot of the information sharing that we as an industry currently do with elements of law enforcement is very much focused on suspected fraud, economic crime and serious and organised crime. This is a slightly broader measure, so we are keen to see in the code of practice a very clear set of requirements for banks to comply with. The infrastructure is certainly there.
Mike Wood
Q
Daniel Cichocki: A variety of powers exist to date. Some have time measures built in for compliance with them and some are voluntary. I think you have to ensure that this particular power is balanced against all the information sharing that the industry is currently required to do with both Government and law enforcement. For example, it must be balanced against the voluntary sharing that the industry is doing, particularly with law enforcement. Certainly, those of us working in economic crime are primarily focused on how we can work with Government and law enforcement to tackle serious and organised crime. Striking the balance between the additional requirements under this power and that effort is an area of focus on which we have also been engaged with the Government.
Mike Wood
Q
Daniel Cichocki: Given that the eligibility verification measure is one of the more extensive powers in the Bill, we think that it may be appropriate to require the Minister to attest that its use is proportionate, as is required with the other measures in the Bill. That is just because of that particular power’s scale in requiring banks to share information on both potential fraud and potential error. As it includes the sharing of information of customers who may not be suspected of any crime whatsoever, we think that it would be helpful if the Government were to articulate that their use of the measure is proportionate, as is the case with the others.
It would also be helpful if the Bill were to replicate the very effective Proceeds of Crime Act 2002 exemption, which exists within the eligibility verification measure, in the other measures across parts 1 and 2 of the Bill. That is simply because we do not think that it is necessarily proportionate or helpful for banks to be considering, in complying with legislation, whether they should also be undertaking a suspicious activity report for the authorities. One of the constructive conversations that we have been having with Government is how we delineate our responsibilities to comply with this legislation and our responsibilities to comply with financial crime measures. We will be writing on this in more detail, but we suggest that the exemption under the eligibility verification measure, which is very helpful, should be replicated in other elements of the Bill.
Andrew Western
Q
Daniel Cichocki: We are making this suggestion because under the Bill banks responding to an information request or a direct deduction order, would have to consider whether there is some indication of financial crime that under POCA requires them to make a suspicious activity report. We think it is simpler to remove that requirement, not least because where there is a requirement to make a suspicious activity report there is a requirement to notify the authorities; clearly, there is already a notification to the authorities when complying with the measure. Removing that requirement would avoid the risk that banks must consider not only how to respond to the measure but whether they are required to treat that individual account as potentially fraudulent. We are trying to manage risk out of the system more broadly with financial crime compliance, so we think it is much more proportionate and effective to simply apply the same exemption across all the measures in the Bill.
Andrew Western
Q
You briefly mentioned direct deduction orders. I know you have some concerns about the debt recovery power, and this is an opportunity for you to set them out. Is there anything you want to elaborate on beyond what you have just said about that element of the powers we are proposing?
Eric Leenders: There are two or three key areas for us. First is the affordability assessment. I think you have heard previously that the use of the standard financial statement would be helpful in outlining essential monthly expenditure. I will come back to that point.
Secondly, I believe the caps differ between the PSFA and the DWP. We think that they should be aligned, with the PFSA’s 40/20 split also applied to the DWP. It is also quite important that there is some form of de minimis, so that individuals do not find themselves without any funds whatsoever. Our thinking is something aligned to the £1,000 threshold that there is in Scotland. HMRC has a threshold of about £5,000, or £2,000 for partners paying child maintenance. We think there should be a floor, but more essential is consideration of one month’s essential expenditure. That would allow the individual to readjust their expenditure in the period when they need to consider making the payments under the deduction order, or indeed the period in which the balances are withdrawn.
Andrew Western
Q
Eric Leenders: We would like to consider a specific de minimis. There are probably two approaches: an absolute amount or a relative amount, dependent on the individual’s essential expenditure—not their lifestyle expenditure. That is why we feel that the standard financial statement would be a useful tool.
Siân Berry
Q
Going back to Daniel’s earlier comment, can you clarify that you do not yet have a clue regarding the volume of requests? Have you been given some sort of estimate by the Government?
Daniel Cichocki: Let me take that first. The Government set out two broad criteria pertaining to the eligibility verification measure: the capital check and the check against abroad fraud, through assessment of transactions abroad. It is difficult at this stage, because the industry has not undertaken any detailed collective analysis of the criteria against the current book of customers. That work has not yet been done. We anticipate it being done through the development of the code of practice, but key for us is understanding exactly what criteria we will be required to run, and then banks can start to build an assessment of how that looks against their current book. That detailed work has not yet taken place.
Siân Berry
Q
Daniel Cichocki: I do not think we take a view on the scope of individual benefits for which this is applied. The key principle for us is that where there are changes to the eligibility criteria, we are required to check that there is proper public consultation around those changes and an appropriate implementation period for any of those changes, and that those changes are not too frequent. As an industry, we have to build a system to run these checks every time, and every change will have to be built and tested. For us, it is more about the principle of the frequency and appropriateness of the changes. The broader debate around what is in scope is not one we have taken a view on.
Siân Berry
Q
Eric Leenders: Certainly. I will just build on Dan’s point regarding change requirements, to give a picture of the timespan involved. Typically, a change would involve the build—IT systems change and training, which is policy and procedures. We would also need to think about communications, including potentially into terms and conditions for the legals that sit around that. We would want to build monitoring systems to ensure that we have conformance and some form of review process. We have a three-line defence model, where the business runs the business, the second line checks the business, and the third line checks the checkers, so to speak. We then repeat that cycle. Putting that in place takes some time, which rather illustrates Dan’s desire for fewer changes and additions, because all of that would need to be considered.
The point on vulnerability is very well made. There is a slight health warning in my comments, because the Financial Conduct Authority is due to publish findings from a thematic review imminently, as I understand—within the next couple of months. The broad drivers we adhere to that they identify are around financial resilience—we touched on that point a little earlier—and physical and mental strain. There are potentially some mental strains for individuals who feel they may be under suspicion, particularly where those prove not to be founded. Life events are critical now—key in affordability, typically the driver for financial difficulty, and also capability. There are various measures, but as an industry we typically would work to a reading age of nine to ensure that the UK population understands the communications that they receive. In building out the guidance, it would be very helpful for a period of consultation so that we can get into the detail and forensics around those points.
Siân Berry
Q
Eric Leenders: It would always be within the gift of a consumer to open a separate account. They can then ask for the benefit to be paid into that account. There might be a risk, from a wider perspective, that potentially attorneys and landlords might no longer want to receive benefits directly because of the potential admin burdens through this Bill. I flag that as a consideration. I do not think it is necessarily a show-stopper but certainly it is something that I think from a vulnerability perspective we need to be alive to, because that might be an additional responsibility on a vulnerable person, for example, to pay the rent.
Georgia Gould
Q
Daniel Cichocki: The key thing for us now, as I said in relation to the DWP measures, is to start to look at the detail of the draft regulations and the code of practice that sit behind the powers, which we look forward to engaging on. Our broader observations are more on the DWP side. Across both elements of the Bill we welcome very strongly the independent review processes that have been built into the powers. We think the scope of those reviews could just consider some of the other factors that we know have been raised as questions around these powers. For instance, could there be more direct scope for that independent reviewer to consider the impact of some of the unintended consequences on vulnerable customers and the cost of compliance? Those are just some broader points on the independent review, but I think the principle of having one across both elements of the Bill is important.
Rebecca Smith
Q
Daniel Cichocki: In terms of broad principles, obviously wherever there is additional legislation and regulation on the sector, we would hope that that is proportionate. We anticipate doing further work with the Government to help to support the impact assessment as a result of the more detailed work when we see the draft code of practice, when we are better able to understand the methods through which this information will be shared, the practicalities of how it works, and the scale at which the powers will be used. We therefore anticipate more work being done around the impact assessment.
We would hope and anticipate that the Government would recognise that the impact on the private sector needs to be proportionate. As well as the cost implications around resource, this is also around prioritisation. To my earlier point, many of the teams that will be complying with this legislation will currently be complying with the broader legislation and regulation that we have in place, sharing information with the Government and law enforcement, and ensuring proportionality of how that resource is deployed. Certainly from an industry perspective, as a broad principle, we would see it as appropriate and desirable for much of that resource to be focused on serious and organised crime in the round.
Eric Leenders: I have a couple of brief points. First, one consideration is congestion. There is quite a crowded mandatory change stack, as we call it. There is a sequence of changes in train that firms are already implementing. Secondly, to your specific point about the cost-benefit analysis, we recognise the challenge that the cost will be direct, as in the build costs that we have just summarised. The benefits—reducing and deterring criminality generally, and perhaps even preventing it—are perhaps more indirect. I suppose that leads to another point: the extent to which we need to be thoughtful about circumvention and how to ensure that the legislation is suitably agile, so that bad actors cannot game the system no sooner than it has been introduced.
The Chair
There being no further questions, I thank our witnesses for their evidence. We will move on to the next panel.
Examination of Witness
Ellen Lefley gave evidence.
The Chair
We will now hear from Ellen Lefley, senior lawyer at Justice. We have until half-past 3 o’clock.
Rebecca Smith
Q
Ellen Lefley: It is right that the bank power, which is the eligibility verification measure, is separated out in terms of proportionality because, just to clarify, it is important that the other powers of information, search, entry and seizure, which are extended by the Bill to the PSFA and to DWP, all contain that threshold form of words of needing “reasonable grounds” of suspicion or belief. That threshold for the exercise of state power requires reasonableness and objectivity—for there to be something there. That rule-of-law barrier prevents fishing expeditions and state intervention in people’s lives when there is simply nothing to it.
Any such form of words, however, is missing from the eligibility verification measure, which is why the privacy concerns and the concerns about the proportionality of the measure have been so concentrated. Justice is concerned about the proportionality of the measure precisely because it does not have that threshold of reasonable suspicion and because of the vast numbers that could be subject to it, albeit that the state pension has been taken out of scope—it was in scope before, under the almost-equivalent measure in the Data Protection and Digital Information Bill last year.
The concern is with the broadness of that power, the lack of a threshold and the fact that the fundamental right to privacy is involved. We all have a right to privacy, and we all have a right to enjoy our privacy in a non-discriminatory way, and that is the further issue that I would raise. I am sure that others will raise this today, too: the almost inevitable disproportionate impact that those financial surveillance powers will have on people who are disabled. There has been no equality impact assessment for this Bill, but there was for the previous one—not that it was released, I think, but it was the subject of a freedom of information request and I had sight of it. It revealed that, even though about 23% of the population at large are disabled, that figure is about 50% for the benefits-receiving population. There is that prima facie disparity. The financial privacy that is enjoyed by citizens of this country and people who reside here is less protected for disabled people than for others. That very much needs to be proportionate and justifiable, given the fundamental rights that are engaged.
Rebecca Smith
Q
Ellen Lefley: Reassurance cannot be the word, unfortunately, given the moment we are in, which is one of increasing automation and increasing investment in data analytics and machine learning across government. Last month, I think, we had a Government statement about mainlining AI into the veins of the nation—that includes the public sector. Knowing that that is coming and having a clear focus on how the functions in the Bill will be operationalised need to be a key concern.
The preservation of human intervention in decision making might have been a statement that has been made, but it is not on the face of the Bill. Indeed, we need to remember that the Data (Use and Access) Bill, which is also before Parliament, is removing the prohibition on fully automated decision making and profiling. That is happening concurrently with these powers. In addition, over the years, there have been numerous Horizon-like scandals that have happened in the benefits area. One, quite close to home in the Netherlands, was a childcare benefit scandal, which Committee members will know of. In that scandal, recipients of childcare benefit allowance in the Netherlands were subject to machine-learning algorithms that learnt to flag a fraud risk simply because of their dual nationality. So there is a problem here. Even with the powers that are subject to reasonable grounds, we need to have a wider discussion as to what reasonable means and what it definitely does not mean when we talk about reasonable grounds of suspicion, when suspicion is an exercise that is informed in a tech-assisted and technosocial decision-making environment.
Justice has some suggestions as to how reasonable grounds can be better glossed in the Bill in relation to generalisations and stereotypes that a certain type of person, simply because of their characteristics, is more likely to commit fraud than others. Perhaps it could be recorded in the Bill that that definitely is not reasonable.
Some useful wording from the Police and Criminal Evidence Act code of practice A is not in the Bill because it relates to the power to stop and search, which is not being given to DWP officers, probably rightly and proportionately, but some explicit paragraphs in the code of practice for stop and search for police officers say that they cannot stop and search someone based on their protected characteristics. Under the Equality Act 2010, they cannot exercise their discretion to stop and search someone due to generalisations and stereotypes about a certain type of person’s propensity to commit criminal activity. Amendments like those could strengthen the Bill against unreasonable, but perhaps not always detectable suspicions being imbued by machine-learning algorithms. Of course, if there will always be a human intervention in the decision-making process, perhaps that could be explicitly recorded in the Bill as well.
Andrew Western
Q
Ellen Lefley: They make up a larger number of the cohort, so we would analyse a prima facie indirect discrimination potential risk there, which would then need to be justified as being necessary and proportionate. The proportionality assessment of course is for Parliament, but we consider that a significant amount of scrutiny is required not only because of the privacy impacts, but because there is that clear indirect discrimination aspect. I am not alleging direct—
Andrew Western
Q
Ellen Lefley: Raising the risk of indirect discrimination when you have cohorts of the population that are disproportionately reflected in any subcommunity of the population that will be exposed to any power is a relevant consideration, so yes in that respect. When it comes to the eligibility-verification measures, the proportionality analysis is, in our view, strained because there is not that threshold of reasonable suspicion. The mere fact that benefits recipients are in receipt of public funds makes them subject to this power. Of course, that could go further; all the public servants and MPs in this room are in receipt of public funds. If that is the threshold that we as a society are happy with, some real scrutiny of its proportionality is required, because it is a power that can require private financial information.
Andrew Western
Q
Ellen Lefley: When I speak about proportionality, the degree of loss is relevant, but there is no question but that the economic wellbeing of the country is a legitimate aim. On whether measures are proportionate to achieving that aim, we must consider not only whether there is any reasonable suspicion, but the degree of external oversight. The Bill includes that consideration, and there are various ways in which some of the powers are subject to independent review.
We have some suggestions as to how those independent review mechanisms can be a stronger safeguard and therefore make the measures more proportionate. For example, the independent review mechanisms seem to have the ability to access information but no power to demand it. That raises a query as to transparency and the full ability of the independent reviewer in different circumstances to meet their objectives. Also, when an independent reviewer lays their report before Parliament with recommendations and those recommendations are not going to be adopted, it might be helpful for there to be an obligation on the Department to provide reasons why not. That would be a more transparent way of ensuring that the oversight measure is as effective as intended.
Sally Jameson (Doncaster Central) (Lab/Co-op)
Q
Ellen Lefley: On the £35 billion figure, I think the benefits fraud and error figure was around £10 billion, and I think £7 billion can be shown to be fraud. I am sorry if I have got that wrong.
Andrew Western
Q
Ellen Lefley: I am grateful. It is a difficult one. For example, we could have almost zero crime in this country if everyone’s house had 24/7 surveillance installed. There will always be a way of decreasing privacy to increase state surveillance and therefore reduce unwanted behaviour, but the balance needs to be struck. Justice’s view is that when the state is getting new powers to investigate people’s private affairs, the balance is struck by having that reasonable suspicion threshold, which requires reasonable grounds for believing that a crime has been committed. That ensures that the powers given to the state in any primary legislation are not open to abuse or arbitrariness. Of course, the laws in the statute book must be written narrowly so that they protect rights on the face of it, rather than being written broadly and relying on the self-restraint of future Administrations to exercise them proportionately.
Charlie Dewhirst (Bridlington and The Wolds) (Con)
Q
Ellen Lefley: We continue to have concerns, acknowledging that there are two key oversight mechanisms in the Bill that were not in the previous one: this independent reviewer role and the code of practice. It would be far easier for Justice, but more importantly for Parliament, to be assured of the proportionality of any human rights infringement if that code of practice were before us.
Paragraph 79 of the human rights memorandum to the Bill notes that the code of practice will significantly impact whether the EVN measures are proportionate and prevent arbitrary interference with people’s privacy. It would therefore be very helpful to see that detail in order for Parliament to be confident about the content of that code of practice and how these powers will actually be used.
Mike Wood
Q
Ellen Lefley: I will try to give a very brief summary of the wider legislative framework that operates with respect to artificial intelligence in general. There are, of course, human rights obligations on any public authority or any authority exercising public functions, as well as equality obligations against direct and indirect discrimination. There is the data protection framework, which of course relates to personal data. Then there are different obligations on artificial intelligence use within different sectoral areas.
Mike Wood
Q
Ellen Lefley: That is where it gets quite tricky, because of course the first barrier would be even knowing that you have been subject to any kind of algorithmic decision making or algorithmic-assisted decision making. If you have been subject to a completely automated decision, the new data Bill that is coming through will enable you to make representations and to request human intervention after the fact. But if algorithms are assisting a human decision-making process, there is no right to be notified, let alone to complain.
The position of someone who has been subject to one of these decision-making processes also needs to be considered in a very realistic way. The motivation, empowerment, means and brain space to complain in such circumstances cannot always be relied on. Justice is clear that while access to redress is always important, preventing unfair and discriminatory decision making always needs to be the priority.
The Chair
There being no further questions, I thank the witness for her evidence. We will now move on to the next panel.
Examination of Witness
Mark Cheeseman OBE gave evidence.
The Chair
We will now hear evidence from Mark Cheeseman OBE, chief executive of the Public Sector Fraud Authority. We have until 3.50 pm.
Mike Wood
Q
Mark Cheeseman: The practical benefit to consider is that the place from where these powers are operated will have some degree of independence and separation from Ministers. That is a practice you would see in other circumstances as well, so it may give Parliament some assurance. That is balanced up against the cost.
Mike Wood
Q
Mark Cheeseman: In the Bill, the Minister passes the powers to authorised officers. The authorised officers could be in that statutory body, and the authorised officers would be the ones who use the powers to do that. Those authorised officers would be people who have experience working in fraud and are part of the Government counter-fraud profession.
Mike Wood
Q
Mark Cheeseman: The Bill currently lays it to the authorised officers. One of the transformations that has been going on in Government is the professionalisation of counter-fraud work. We now have a counter-fraud profession. There are now professional standards where, a while back, there were not, for a lot of investigations in the public sector. There are professional standards and practices, and a code of ethics for people who work in the sector. That sets a standard for the knowledge, skills and experience that the authorised officers exercising the powers would have. As to what level they are, that aligns with current practice and what you would see across the public sector.
Mike Wood
Q
Mark Cheeseman: The Public Sector Fraud Authority has been created by bringing together people from other spaces. These powers are designed by His Majesty’s Revenue and Customs. We heard from Richard Las earlier about the powers that HMRC uses to take action on suspected fraud where it has reasonable cause to do so. It is some of those experts who have come and developed these powers. I feel that that capability will come into the organisation, through which the organisation will be able to use the powers.
Mike Wood
Q
Mark Cheeseman: Absolutely. The code of practice will be developed alongside the legislation, as is standard practice.
Mike Wood
We saw this in other legislation under the previous Government. It is not uncommon for Ministers to give an undertaking that at least a draft code might be published before legislation returns to Parliament for final decisions to be made. I know this is, perhaps, a question to ask of Ministers in a future session, but what are your thoughts on developing a draft code that parliamentarians might be able to look at whilst making those decisions, given that the legislation is now well under way? Is that something that you feel is a long way away, or would it be possible to have at least an outline of a draft code in a reasonably short period of time? I accept that there will be developments as we learn with experience.
Mark Cheeseman: I will leave Ministers to answer that question later, but we are developing the codes of practice now. The reason I talked about who has come into the Public Sector Fraud Authority to think about this is because it is not from scratch; we are basing it off current practice elsewhere. We are now developing those and they are under way, but I will leave it for Ministers to respond on the timescale.
Mike Wood
Q
Mark Cheeseman: It is important to remember that the 10 days in the legislation is a minimum. It is the lowest that would be used. It is not saying that it will always be 10 days. One of the witnesses earlier highlighted that some of the organisations will have standard practices where they could respond in that time—they will be set up to do so. The time that is given will be dependent on the organisation you are interacting with, the individual you are interacting with and what is reasonable. Our fraud investigators are trying to balance the expediency of doing the investigation with making sure that people can respond, and that it is a fair and reasonable time to respond. The balance is there, and we should remember that that timescale is a minimum.
Mike Wood
Q
Mark Cheeseman: It is slightly different—it goes back within the structure, but the review of that decision is done by a separate authorised officer from the original authorised officer who did it.
Mike Wood
Q
Mark Cheeseman: The process as set out in the legislation is within the organisation, but there is an extra safeguard of an independent chair who will review the decisions taken by authorised officers. One would expect that that would be on a sampling basis, but we will be reviewing those decisions. If there are practices where those timescales look unreasonable, the independent chair could pick up on that and ask for action to be taken on it.
Mike Wood
Q
Mark Cheeseman: There will be case-by-case review, but you are right; it will be more, “Here is an issue that should be dealt with, and here’s how”.
Andrew Western
Q
Mark Cheeseman: My view is that the Bill does strike that balance, and it tries to strike the balance. It is difficult, because you need to balance the ability to take action against someone who has committed fraud against the state with having fair and reasonable processes for looking at someone who has not. The purpose of an investigation is not to find fraud; it is to find fact. That is why we have professionals who are trained and have a code of ethics around objectivity; their role is to find fact, not fraud. The Bill tries to strike that balance both by having authorised officers and by having the oversight that is in place. The Government structure, in having the counter-fraud profession, provides some of that as well. My view of the Bill is that there is a fair amount of independent oversight—that is a good thing—to increase how well things are done.
Michael Payne (Gedling) (Lab)
Q
Mark Cheeseman: Of course. When we estimate fraud, we estimate fraud and error, as the NAO has done. The NAO used the methodology that we have used previously. We have not repeated that yet, because it has gone ahead of us in the cycle. I have no reason to indicate that its estimate is incorrect, but that is its estimate, and Joshua was here earlier.
We estimate fraud and error as a whole, rather than fraud separately, but what we have seen in the fraud data is that detected fraud in the public sector has risen over the past few years. We have published that. Some was due to covid, but some is in other spaces. Earlier witnesses indicated that the threat has risen and that there are some changes in the perception of fraud and of how people may approach it.
My perspective is that the level of fraud and error in the system is high. There is waste there, and Parliament itself has challenged the Government on what more they can do to deal with it. The threat is rising, and therefore in my position, I think that the powers will help to take action on that. There is more to do to drive down waste and to reduce fraud in the system.
Michael Payne
Q
Mark Cheeseman: I will come back to what I said about the counter-fraud profession. We are one of the only countries in the world with professional standards published. Those are used by the police, the Serious Fraud Office and HMRC. They use these types of powers successfully on a regular basis. We would have exactly the same standard of investigator—both by bringing them in and by training them up to those standards—who would use these powers if and when they are in place.
Georgia Gould
Q
Mark Cheeseman: Yes. Apologies—that was a slip when I answered earlier. Yes, the powers of the Minister—it is written as “the Minister” in the Bill—are delegated to authorised officers, who sit in the PSFA. They would be qualified to the standards of the profession, and they would be taking the decision. What I was referring to earlier is that any review decision, if someone asked for a review, would be taken by a separate authorised officer. There are a number of provisions in the Bill to enable people within the process to make an information-gathering request or to ask for something else to be reviewed.
Georgia Gould
Q
Mark Cheeseman: Absolutely. That decision is made by the authorised officers, based on their experience of weighing up both proportionality and how they can engage with the organisation or individual they are asking for that information, and that individual or organisation can request a review of that request.
Georgia Gould
Q
Mark Cheeseman: Absolutely. First, the PSFA has been brought together from experts across the system. We have brought in experts not just from within the public sector, but from other sectors, and we also work with other countries to understand what they do on this. We have been consulting very widely with the public sector, and a number of the people who have come to look at this have looked at it from the point of view of what they could not achieve in their own public bodies and therefore how they could take more action and what that power would look like. We have also brought together other investigators and asked them what they think the optimal powers are and what the proportionality aspect and the safeguards should be, and considered that. We have done quite broad consultation within the public sector, but we have also asked local authorities what their views are on other aspects such as that.
Georgia Gould
Q
Mark Cheeseman: The Public Sector Fraud Authority has two elements to it. One is overseeing Government and how individual Departments are doing in dealing with fraud and what they are doing on it; the Bill itself says that Departments would refer cases to the PSFA and ask for them to be dealt with under it. The second is providing some of the services that support Departments around taking action on fraud where it happens.
The biggest difference we will make, alongside that, is through prevention. We heard from witnesses earlier about the use of data and analytics. We have a data and analytics service that works with public bodies to use that to find and prevent fraud up-front. We also have a risk service that works with other parts of the public sector to understand the risks they face, in order again to prevent those risks by putting in controls.
While there will always be that balance, there will also always be some element of fraud that is still committed. We will not be able to design a system where there is no fraud risk or design out fraud. There will always be cause for an efficient, effective and proportionate part of the machine to take action on those instances of fraud and to investigate them thoroughly and properly.
Rebecca Smith
Q
Mark Cheeseman: Again, I do not know whether it would need to be in the Bill; that would be for you to debate. As it gets past the authorised officer, there is a structure: there are senior leaders with deep experience in investigating fraud who are overseeing them. We have structures of senior investigation officers overseeing your investigators and the individual authorised officers. While it may feel like a big jump, there is a structure to ensure quality, to ensure the right practices, and so on. That directly compares with what happens elsewhere.
I am pretty comfortable that “authorised officers” is a term used elsewhere. I recognise what you say about the seniority of grade; I had to have a wry smile, because it took me a while to get to HEO and SEO—higher executive officer and senior executive officer—but those are still senior, experienced roles. They are experienced administrators with a high level of skillset and expertise doing those roles. Part of the reason for creating the counter-fraud profession is to show the expertise and capability that those experienced counter-fraud experts have in taking action on fraud.
The Chair
There being no further questions, I thank the witness for his evidence and we will move on to the next panel.
Examination of Witness
Jasleen Chaggar gave evidence.
The Chair
We will now hear evidence from Jasleen Chaggar, the legal and policy officer at Big Brother Watch. We have until 4.10 pm.
Rebecca Smith
Q
Jasleen Chaggar: We recognise that the Bill is different from the previous Conservative Government’s Bill and some changes have been made. However, we are still concerned that the purported safeguards in the Bill are really insufficient. One of the major safeguards that is pointed to as a reassurance is the fact that financial transaction information and special category data will not be handed over to the DWP from the banks. However, it is a circular safeguard in reality, because once the account number and name of the individual has been passed on to the DWP, it can very easily go back to the bank and request that granular financial information. That is incredibly privacy invasive, as you will know, so we are still concerned about the safeguards in the Bill.
A similar safeguard is the provision for an independent person, but there are no safeguards about what qualifications that person should have. They are expected to provide an annual report to Parliament, but we are concerned that their oversight role is more to do with enforcement than accountability. There are provisions about the efficiency of the measures but no provisions about how they impact equality or the adverse consequences on benefits recipients, so we are not reassured by these safeguards.
Rebecca Smith
Q
Jasleen Chaggar: Is that in relation to—
Rebecca Smith
Particularly in relation to bank account details and information on spending, and that sort of thing, which you just used as an example.
Jasleen Chaggar: On the eligibility verification measures—what we are calling the bank spying powers—we are recommending that they be removed in their entirety. They really are unprecedented financial surveillance powers. There are no other laws like this in this country. The powers would permit generalised mass surveillance of everybody’s bank accounts. It is not just benefits claimants who will be targeted; it is everyone’s accounts, including yours and mine. They will be scanned using algorithmic software to make sure that the eligibility indicators are not met. Even if you are a benefits recipient, you can appoint an individual—a parent, a guardian, an appointed person or your landlord—to receive the benefit on your behalf, so those people will also be pulled into the net of surveillance. We do not really see a way in which these measures could ever be proportionate.
Andrew Western
Q
Jasleen Chaggar: What is really important about the Bill is the conflation of fraud and error. It is not just people suspected of serious crime, or even low-level crime, who are pulled into the net of surveillance. It is also people who, while navigating the complexities of the benefits system, may have found themselves on the wrong side of making a benefits claim and made a mistake. It also involves DWP’s own errors, which make up one in 10 errors. What is critical when we are thinking about the Bill is that it is suspicionless surveillance that applies to everyone.
Andrew Western
Q
Jasleen Chaggar: There is another difference between HMRC recovering money and the DWP recovering money. When you think about the types of individuals these powers will be recovering money from, they are among some of the most vulnerable in our society. There are people living on the breadline, disabled people, elderly people and carers, who will all be dragged into this surveillance. The risk of errors caused by the automated system that is proposed will, therefore, have a dispro- portionate effect on those groups of people. There is a difference, if that is the case, between the powers being used by HMRC and the DWP.
Andrew Western
Q
Jasleen Chaggar: I am not aware of powers that are similar to eligibility verification notices that are exercised by the DWP. I am aware that they have similar powers in relation to direct deduction orders, and maybe that is the distinction that the witnesses earlier were making.
Andrew Western
Q
You talk about the inclusion of error, as well as fraud, in what we are attempting to do here. Do you accept that there is the potential, through the effective use of the eligibility verification measure, to detect overpayments through error sooner, thereby reducing any overpayment because it would come to light earlier?
Jasleen Chaggar: Yes, and to stop people getting into debt is an incredibly laudable aim. The question is whether we are willing to infringe the privacy rights of the entirety of the population to do that. Perhaps a more proportionate solution would be to make it easier for those benefits claimants who are making mistakes to navigate the system in the first place.
Coming back to your previous point, if you were happy to send me information about those powers, I would be happy to get back to you with our position on those.
Andrew Western
Q
Jasleen Chaggar: I accept that the Government are purporting that this is a sufficient safeguard, but I propose that it is not, because of that circularity.
Andrew Western
Q
Jasleen Chaggar: Absolutely. We believe as much as anyone that fraud and error need to be tackled in this country. Our position is that the best way to do that is through intelligence-led policing, where there is suspicion of fraud and not just of error, that is well resourced. In relation to error, as I have said, we think that making the benefits system easier to navigate in the first place, and the DWP getting its own house in order to avoid its own errors, are far better, more proportionate and privacy-preserving solutions than the ones proposed in the Bill.
Andrew Western
Q
Jasleen Chaggar: I think that it is important that suspicion has already arisen before those policing powers can be enacted. The police already have powers to request that granular financial information where there is suspicion of fraud.
Andrew Western
Q
Jasleen Chaggar: I think that there are ways to address this. We are a civil liberties organisation, and our job is to be a watchdog and to ensure that privacy rights are preserved. I do not have a solution for how the police should find out whether someone is suspicious, but we should not sacrifice the privacy rights of us all just to find out whether we should be suspicious of someone when no suspicion exists. As I said, it is a disproportionate power.
Siân Berry
Q
Jasleen Chaggar: Our view is that the powers will only ever be proportionate if they uphold the presumption of innocence, due process and judicial oversight, and any privacy infringements are set out in law and are necessary and proportionate. We feel that a code of conduct would be insufficient, because it would just defer those legal protections to some other time. Also, if an individual has a problem as a result of the use of the powers, they are unable to enforce their rights through a code of conduct. Setting out the protections in legislation would create a far more rights-preserving framework, with which we would definitely feel more comfortable.
Siân Berry
Q
Jasleen Chaggar: We are really concerned about the unintended consequences of the Bill. We appreciate that there has been an effort to tackle fraud and error, which is a serious problem, but we also have to consider the adverse and unintended consequences. One of those is the algorithmic error that can occur when automated systems are used on a population-wide scale. If the algorithms are scanning the bank accounts of 10 million people, an error rate of just 1% will result in 100,000 cases where innocent people are wrongfully investigated.
We are also really concerned about the human backstop element. The DWP has assured us that there will be human involvement in any investigations on the back of receiving this data, but when you receive such a deluge of information from the banks, that calls into question whether the human involvement will be meaningful. The impact assessment acknowledges that by saying that we might have to slow down the rate at which we receive all this data from banks. We are very concerned about the false positives, and about the devastating effects that they would have on the lives of the individuals who are wrongfully investigated.
Benefits recipients, who are already subjected to burdens in terms of documentation requirements, will find themselves subjected to an investigation by the DWP. We have heard from dozens of disability rights and elderly rights groups about the anxiety and stress that this will cause. Also, when benefits recipients are under investigation, they can find that their benefits are suspended, meaning that they will not have the money to pay for food, medical bills or heating bills. So the equality impact also has to be considered, and we have not actually seen an equalities impact assessment for the Bill either, which is a concern.
The Chair
There being no further questions, I thank the witness for her evidence. We will move on to the next panel.
Jasleen Chaggar: Thank you for having me.
Examination of Witnesses
Geoff Fimister and Rick Burgess gave evidence.
The Chair
We will now hear oral evidence from Geoff Fimister, of the Campaign for Disability Justice, and Rick Burgess, from the Greater Manchester Disabled People’s Panel, who joins us via video link. For this panel, we have until 4.40 pm. I have introduced the witnesses already, so we will go straight to Rebecca Smith.
Rebecca Smith
Q
Geoff Fimister: I should say, first of all, that the Campaign for Disability Justice was launched relatively recently—a few months ago—by Inclusion Barnet. We now have a substantial number of individuals—several hundred—supporting us, as well as a substantial number of organisations, ranging from large charities to grassroots disabled people’s organisations, so we get quite a lot of feedback.
I suppose our concern with the Bill include a broad aspect, but also a very specific aspect as to how it may impact disabled people. The broad aspect is that, because it focuses very much on means-tested benefits, it will, by definition, disproportionately affect people on low incomes, and disproportionately affect disabled people, because they are more likely to be on low incomes than others.
The practical issue, which I think has attracted the most concern, from the conversations I have had, is false positives, as the previous witness, Jasleen Chaggar, mentioned. We are all familiar with a world in which we have problems with malfunctioning technology. Every few months, my internet provider locks my inbox because of “suspicious activities”, which have included sending an email to an MP’s researcher or one to Mencap. Every now and then, my bank freezes my wife’s and my bank accounts because of “suspicious activity”, such as, on one occasion, purchasing a sandwich from a Marks and Spencer in Deptford.
That might sound entertaining, but it is a serious business; this tech goes wrong, and I think the previous witness made the point that, if large numbers of people are embraced by this kind of trawl, it will go wrong for a percentage of them. We do not know whether that will be a large or a small percentage, but even a small percentage of a big number is a lot of people. People being left without any income if technology triggers the cessation of their benefit is a serious business. Not having any income can cause hardship, debt and stress. In extreme cases, there can be serious health and safety issues. Disabled people are concerned about that kind of eventuality.
As to what we can do about it, I understand the thrust of the Bill and where it is coming from. In parliamentary terms, it has widespread backing, although a number of reservations have been expressed. We would like to see some sort of safeguard whereby benefits could not be stopped unless and until it was established that there was an overpayment—not that the DWP thinks that there might have been because the tech spotted something. We do not want to see a “shoot first and ask questions” later approach. If we could have some protection along those lines, that would be helpful.
Rick Burgess: I stress that I am from the Greater Manchester Coalition of Disabled People. The panel is something we do, but I am not speaking in that role today.
There are particular worries about how this affects people living with mental distress, particularly those with diagnoses of paranoia, schizophrenia, depression or anxiety. This adds to the feeling of being monitored, followed and surveilled, because you literally are being surveilled by your bank on behalf of the Government. So it will necessarily reduce the wellbeing of disabled people who are claiming benefits that are monitored by the system. There is no getting away from that.
On the potential risks, when you enter a trawling operation, you are not targeting it in any way; you are simply looking at everyone. So the error rate becomes extremely important. We do not know exactly what the technology is. We have not seen the equality impact assessment, but even if it had a failure rate of 0.1%, which would be a quite respectable systemic failure rate—it is pretty acceptable in a lot of these areas—that is still 1,000 people per million scanned. If you are talking about even the means-tested benefits, that is going to run to thousands of people getting false positives. If you think about the entire DWP caseload, which is 22.6 million people, that is over 22,000 people. Bearing in mind that the Post Office scandal involved fewer than 1,000 people, you are at the inception stage of something that could be the greatest miscarriage of justice in British history, if you go ahead with this with untested technology that has not had proper impact assessments.
I stress, though, that we are against this measure in its totality because it treats disabled people as a separate population who should have lower privacy rights than the general population. In that respect, given that the United Nations has condemned the UK twice in a row for grave and systemic human rights abuses, this is going further in the wrong direction and failing to address the failures identified by the UN. It is further marking disabled people for additional state oppression and surveillance, which, as I said, will necessarily be harmful to a great many of the people under the surveillance regime.
Andrew Western
Q
Rick Burgess: Because we are over-represented in those classes. If you choose to target it at those cohorts, you are accepting an additional level of targeting towards disabled people, which is discriminatory.
Andrew Western
Q
Rick Burgess: I think it does edge into that. There is certainly established thinking and case law that begins to establish that. The Equality and Human Rights Commission need to be brought into this urgently. There need to be public and transparent equality impact assessments, because I do not see how this does not breach a right to privacy and represent discrimination against groups who are over-represented in these cohorts.
Andrew Western
Q
Rick Burgess: It is about where that measure is one of a number of additional enforcement measures, rules or laws that would have negative consequences. The key to this is the trawling nature of the technology; it is not targeted, beyond being aimed at everyone on UC, everyone on ESA and so on. When you trawl, you do not target, and then you have a huge cohort. If, in that cohort, you have over-representation, without even thinking about it, you have then enacted a level of discrimination, because of the trawling nature of this approach.
If this approach applied to everybody on benefits, that would also be slightly questionable, because you are applying a different level of privacy to people who get an award from the DWP versus people who do not. If it applied to the whole country, I suppose that would be fairer in one respect, but it would also be a breach of everyone’s privacy, which goes to another question.
In terms of this measure being important for Government revenue, the amount lost to the tax gap is more than four times more—we are talking about £9.1 billion, but the tax gap is over £39 billion. You would recover more money if you subjected the whole country to this measure, but I would suggest that the reason you do not subject the whole country to it is that there would be outrage, because people would find their rights to privacy being completely abused.
Applying this measure in these targeted ways suggests a level of, “Well, these are people who perhaps have less rights to privacy than the general population.” If you are happy to have your bank account monitored in this way, fine, but you have not suggested that this should apply to the general population. You have suggested that it should apply to a population who receive benefits, and within that population there is an over-representation of disabled people, who are already exhaustively monitored, reviewed and tested and having to provide proof, whether that is for a blue badge, personal independence payment, ESA, universal credit or a concessionary pass on public transport.
The life of a disabled person is to be constantly tested and examined and having to produce proof, and this is another step in that. That is why this is germane to the United Nations report on the convention on the rights of persons with disabilities. We have continued down the road of removing rights, not respecting them, and of subjecting disabled people to greater scrutiny, greater surveillance and greater tests of their basic rights to be a citizen of this country. It is really quite distressing for disabled people to be in this position.
Not only have we had two really damning reports from the United Nations, but the new Government is actually adopting old policies of the previous Government and continuing on that road. The level of anger and distress in the disabled community is absolutely enormous. It is really difficult to explain to people that this is not an obvious attack, or one motivated by ableist assumptions about how disabled people run their lives or whether they are more or less honest, or more or less genuine, than people who are not disabled. It is really hard going for us—I have to tell you that. Disabled people in Britain have had a decade and a half of being the scapegoat of this country, and it has to stop. This measure is actually making it worse, as opposed to stopping that scapegoating.
Geoff Fimister: I just want to add something to a point that Rick made. We both made the point that the discriminatory aspect relating to disabled people arises, in the immediate sense, from the fact that these means-tested benefits are primarily in scope at the moment, and disabled people are disproportionately likely to be on low incomes. It is worth adding that if this measure were to be extended at a future stage to a wider range of benefits, potentially bringing disability benefits into scope, that would be even more sharp discrimination against disabled people.
They are not theoretical points that Rick has been making—there is a really raw feeling among disabled people that they are being targeted. In the context of quite a lot of negative media publicity around the interface between employment and unemployment among disabled people, there is an unpleasant atmosphere for disabled people. That is certainly the feedback that we are getting.
Andrew Western
I will not ask any more questions, but I just say to Rick that I think it might be helpful for a follow-up conversation to take place. Without wishing to get into a protracted argument, there were some things that I did not recognise as part of the Bill, but clearly that is how people are feeling and how the people you represent are feeling. I am very happy to ask officials to pick up a conversation to go through the detail.
The Chair
There being no further questions, I thank the panel for their evidence, which was robustly delivered.
Examination of Witnesses
Andrew Western and Georgia Gould gave evidence.
The Chair
For the final session, we have the Ministers in charge of the Bill. We have until 5 pm. You have been participating actively in the proceedings already, but could both of you please introduce yourselves for the record?
Andrew Western: I am Andrew Western, Minister for Transformation at the DWP.
Georgia Gould: I am Georgia Gould, the Minister for public sector reform at the Cabinet Office, with responsibility for fraud against the public sector.
Mike Wood
Q
Andrew Western: For the DWP part of the Bill, there will be three individual codes of practice: one for the eligibility verification measure, one for the debt recovery measure and one for the information gathering measure. As for exactly how they will work, you will appreciate that we are able to talk only in general terms at the moment, because that will depend on what the final version of the Bill looks like. That is why we do not currently have a code of practice that we can share.
Perhaps it will be helpful if I say a bit about how we intend to engage both Houses on the content of the codes of practice. For the Bill Committee, I will provide an outline of what will be covered by the draft codes of practice as we come to each of the relevant clauses, allowing the Committee to provide feedback on what they feel should be in there.
Beyond that, we intend—there are ongoing engagements, as you heard earlier from, for instance, UK Finance—to publish a draft version of the codes of practice as they pertain to the DWP in time for the House of Lords Committee stage, so it will also have the opportunity to play into the conversation on that. Ultimately, there will be a final statutory public consultation on the content of the codes of practice. It is difficult to say with any sort of exactness or precision what the codes of practice will look like at this stage, without knowing what amendments, if any, will be made to the Bill. But I know that Georgia has a code of practice on her side as well.
Georgia Gould: I do, and the same applies. As we go through the clauses, I will share with the Committee where we are on the codes of practice in relation to those clauses. We are working on the same timeline set out by the Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Stretford and Urmston. For the PSFA, within the Bill, it requires a code of practice that is particularly focused on penalties, in clause 60. Beyond that mandatory content, the intention is that the code of practice will also include information on safeguards and vulnerability assessments when it applies to the PSFA powers for investigating individuals, and more detailed information on the various reviews and appeals.
Mike Wood
Q
Andrew Western: That is the route we are taking. Obviously, Members have an opportunity to suggest what they would like to see in the code. The code is primarily an operational document rather than one on the general principles in the Bill and what we are trying to achieve through it. I absolutely understand that Members will want to see that, but we are simply not able to bring forward a final code of practice. It would not be possible to do that without knowing what is in the Bill. We can commit to sharing a draft as soon as we are able, but even that would be subject to change. It is not unusual, as I understand it, for this to be the case.
Mike Wood
Q
Andrew Western: All I would say is that that is the timeline we are proposing to follow. We will share the draft code of practice as soon as we are able to do so for all the measures that have them.
Mike Wood
Q
Andrew Western: I am happy to confirm precisely—because it may be that Members, as we go through the Committee stage, make it very clear what their expectations would be—what the current proposal is before we go into line-by-line scrutiny on Thursday.
Mike Wood
Yes.
Andrew Western: Because they are iterative documents that will change as we go through the test-and-learn phase. In particular, we are looking to introduce the eligibility verification measure in quite a cautious manner initially to check that it works, and to check that we do not have the sort of overreach that some witnesses have suggested may be the case. We want to be certain that the false positives that we have talked about and that witnesses have raised are minimised as best as possible. It is to enable flexibility so that we have the maximum potential to make any changes that we require, but obviously we would update the House as and when we were to do that.
Mike Wood
Q
Andrew Western: I would be very happy to have that conversation, should you want to table any amendments in that regard.
Mike Wood
Q
Andrew Western: I would not accept that and I do not think that that is the case. I would say that we require that flexibility. Even with the six weeks, if there are problems in the process, we would potentially need to act more swiftly than that, based on feedback from stakeholders. As I said, colleagues are very welcome to table amendments if they want to secure any changes in that regard.
Neil Coyle
Q
The Chair
That is a matter for debate. I think it is probably a question for the Library. Let us carry on with the questioning.
Mike Wood
Q
“Where it is proposed to introduce a code of practice in a way or for a purpose which departs from the guidance below, Ministers should be aware that this is likely to be controversial, particularly in the House of Lords.”
Have officials brought that to your attention?
Andrew Western: As I said earlier, we hope to have a draft code of practice by the time we reach the House of Lords Committee Stage. Clearly, alongside consideration of that guidance, as I said—and it was reiterated by Mr Coyle—this has not been unusual practice in recent years, as I understand it.
Mike Wood
Q
“the drafting of the code ought to begin early enough to enable a decision as to whether statutory provision is required”.
Has that drafting been done early enough?
Andrew Western: As I said, we will debate this in more detail as we come to the relevant stages. I think that we have done this in sufficient time to enable us to consult, as we are required to do, on the statutory code of practice and to ensure that both Houses can see it as it makes its way through the process.
Mike Wood
Q
“if Parliament is to be asked to enact statutory provisions relating to a code,”
which appears to be the case in this instance,
“a draft of the proposed code should if at all possible be made available so that the appropriateness of the statutory provisions can be properly considered.”
Obviously, that is part of the legislative process. Should we not have that information? Why should only the House of Lords be provided with that?
Andrew Western: I suspect that at that point you are asking a procedural question, so I am not best placed to answer it.
Michelle Welsh (Sherwood Forest) (Lab)
Q
Andrew Western: In the DWP space, we estimate that the amount would be £1.5 billion over the forecast period. That roughly equates to around £950 million on the eligibility verification measure, with the overwhelming majority of the rest—in fact, almost all of it—coming from the debt recovery power. There are also potentially significant savings over time that my hon. Friend the Parliamentary Secretary, Cabinet Office may want to outline with regard to the PSFA powers. I realise that they are scalable; they start off small-scale. Minister Gould, would you like to come in on the potential?
Georgia Gould: They are more modest in the first instance. We are estimating just under £60 million-worth of savings. We are testing the new models. If the model is successful, there is potential to scale that up. We think that this is the first time we are introducing powers to take on fraud in the wider public sector outside tax and welfare. A huge amount of fraud has gone uninvestigated. We think the deterrent impact of this will be substantial.
Gill German (Clwyd North) (Lab)
Q
Andrew Western: As I have highlighted in my questions to witnesses throughout the day, there is the potential, through the eligibility verification measure, for a number of overpayments to be detected earlier than they would have been otherwise, thereby avoiding the large numbers that we have seen people rack up in overpayments through, for instance, the carer’s allowance challenges that we have seen in recent years.
The breadth of the conversation we are looking to have with people who are in debt with the Department is significant. We heard about the MoneyHelper service, on which the Money and Pensions Service works with us. That is just one of a range of organisations and packages that we utilise to support people who are in debt. We know that, whatever the reason—whether it is fraud or error, but particularly, as you say, if it is error—it is an incredibly stressful time for people.
In debt recovery terms, the power that we are taking is intended to be a power of last resort. What we always want to do, having been through all the things that you would expect us to do—the vulnerability management framework that was referenced earlier and the assessment that we make of people’s ability to pay—is to agree an affordable repayment plan. By the time we reach the point where we are looking for a direct deduction order, we would have looked to engage somebody on multiple occasions, contacting them several times and trying to agree that plan. This is for people we have no other means of engaging. It is as much a lever to try to bring them to the table and have the sorts of conversations you referenced as anything else.
This is also about addressing the existing fundamental unfairness. We can directly deduct from somebody in receipt of benefits, by deducting from that benefit entitlement, and we can do the same for someone in pay-as-you-earn employment, but we do not have that opportunity for people in receipt of income through other means—most obviously, but not exclusively, self-employed people. There is a fundamental point about addressing that inequity in the system. Having made those financial assessments, we know that these are people who can afford to pay. We have tried to reach out with the wraparound support that you suggested, and ultimately, they continue to refuse to engage.
Michael Payne
Q
Andrew Western: As it relates to the DWP—I do not know whether you want to say anything about the PFSA powers later, Georgia—it is worth reflecting that the proposed eligibility verification power is in effect a data-push power. The banks will not make any decisions as to someone’s culpability, on what penalty they might receive, or on whether the overpayment flagged on the account is legitimate; all the banks will do is send back a marker against an account to suggest that someone is in breach of their eligibility requirements.
For example, that might include someone who has more than £16,000 in their account, but is in receipt of universal credit. It is important to say that the flag is then passed to a human investigator to analyse the information and look at what the reasons may be, because there can be very legitimate reasons why someone has more than £16,000 in their account and is still entitled to benefits, such as someone who has received a compensation payment that is out of scope of what would be considered capital for benefit-eligibility reasons.
In all the five principal measures on the DWP side of the Bill, a human is involved in the decision making: on eligibility verification, it is passed to an investigator; on information gathering, when we receive information, it is passed to an investigator to consider the next steps in a fraud investigation; on debt recovery, an individual—a person—would make a decision as to someone’s ability to repay a debt; and on penalties reform as proposed, a human will determine what actions will be taken against a person who received a penalty for fraud against a DWP grant scheme. That is entirely the way that it works with any other penalty that can already be applied. Finally, on the powers of search and seizure, as we would expect, a human judge will take a decision on whether to issue a warrant. At every stage, a human decision maker is baked in before any final decision on sanction or otherwise.
Rebecca Smith
Q
Andrew Western: A draft code of practice will not be available at that stage, so I will speak in general terms about what we intend to include, but there will not be a written document at that stage.
Rebecca Smith
Q
Now the question that I was coming to, if I may. The state pension has been explicitly excluded from the eligibility verification measure, and the three means-tested benefits are the initial focus. I wonder why the Government have left it open to include other non-means-tested benefits in future, and what data would the Government ask for in those cases?
Andrew Western: The state pension is excluded—because of the particular nature of the eligibility criteria for state pension and the consequently incredibly small amount of fraud that we see on it—considering the number of people we would have to bring into scope of the measure to go after what is a tiny amount of fraud. It is not considered proportionate to do that, as far as I am concerned.
The determination that we have made as to the three benefits that should initially be in scope is entirely predicated on current levels of fraud and error. We want to retain the ability, if necessary, to bring other benefits into scope, should there be a surge in fraud in those benefit areas. We do not anticipate this, but we want to future-proof the Bill as best as we can, should there be any material changes in the level of fraud in those areas. For instance, if we consider the tiny amount of fraud in the state pension versus the £1 in every £8 currently spent in universal credit that turns out to be fraud or error, it is clearly right to distinguish between benefits and consequently to have some in scope and others not.
Sally Jameson
Q
Andrew Western: I answered this slightly in response to Mr Payne, but the flag in of itself does not mean that someone has been found guilty of fraud. A bank indicating to us that someone has above a certain amount of capital in their account does not mean, “Job done, box ticked”, or that person receives news that they have been found to have committed fraud, or that we then go through the penalty process with that individual. It would be referred to the most appropriate team for investigation—in the case of capital fraud, the team that looks at that particular type of fraud.
The principal other type of fraud that we think would be in scope is people who have been out of the country for longer than they are allowed to be as a condition of their benefit. Again, it is really important that we do not automatically penalise somebody for having done that, because it could be on grounds of a health emergency abroad. I had somebody in my advice surgery recently whose flights had been cancelled due to an environmental issue in the country that he was seeking to return from. It is really important that this is triaged to a human investigator to look into what the nature of the flag is, what the benefit eligibility criterion that we suspect may not have been satisfied is, and then take the appropriate steps needed to establish whether there is any legitimate reason for that.
Siân Berry
Q
Andrew Western: We would need, at that point, to take advice—legal advice, primarily—if there was that level of concern around any human rights impact. I would not want to second-guess, but certainly, in the instance where those views have been put forward and the legal advice suggested that they were valid, then clearly we would need to take appropriate action to ensure that the Bill is legal and satisfactory.
Siân Berry
Q
Anthony Western: When I talk about reducing over-payments, I mean reducing the value of overpayments rather than the number. Obviously, for a bank account to be flagged, there would have to be something in there to cause that flag. This would not reduce the overall number of overpayments necessarily, but it would reduce the amount of debt that someone might have accrued, were the eligibility verification measure to identify that at an earlier stage. We have seen some horrendous cases, through the carer’s allowance issues that have come to light, involving really significant numbers, because it has gone on for several years. That is the sort of thing we would be able to stop as a result of this—I am really sorry, Siân, but I cannot remember the rest of your question.
Siân Berry
Q
Andrew Western: I am not sure that I fully understood the question, so please come back in if needed. It is clearly the case that if somebody has been receiving benefits that they are not entitled to, for whatever reason, they could end up in a worse financial position as a consequence. That is necessarily the case for two principal reasons. One is that in universal credit all overpayments are reclaimed regardless of the circumstances behind them. That was the policy enacted by the previous Government. The other reason is that they may no longer receive benefits that they previously believed themselves to be entitled to. For instance, if it comes to light that you have £18,000 in your account and there is no mitigating circumstance for that, it would be the case that you would be worse off in overall terms because you would no longer receive that benefit.
Siân Berry
Q
Andrew Western: I am not prepared to put a percentage on it. We would have to see what came out. We have done two previous trials on this and we are fairly confident in the mechanisms that are in place. That has underpinned some of the assumptions we have made. We are committing through this process to a test and learn phase so that we can keep errors as minimal as possible. Ideally, I would not want to see any errors at all, but ultimately we have structured this so that, were something to come back as a false positive, as it were, it would not lead to an immediate decision, because it would be passed to a human investigator for further investigation.
Neil Coyle
Q
Andrew Western: I think it is fundamental, given both the lack of previous action that you identify and a general modernisation of powers. The world is changing. The nature of fraud is changing, and the behaviours exhibited by fraudsters are different from those of 10 or 15 years ago. The previous Government tried to bring forward the third-party data measure, now likened to the eligibility verification measure, but it did not have the oversight and safeguards in place that we have now.
There are a number of totally new proposals in the Bill that are crucial. To your point about the capacity of the police, the powers of search and seizure will be particularly helpful in speeding up investigations into serious and organised crime, because we can crack on with that, as it were, and enter premises without the need to wait for co-ordinated action from the police.
The other totally new power that is really important here, and which I personally think is a fairness argument, is the ability to directly deduct from people who receive their income through means other than benefits or PAYE employment. Overall, it is a fundamental change to the way that we do it, and it is part of a broader package. As I said earlier, this saves £1.5 billion over the forecast period, but it is part of a broader suite of measures that amount to the largest ever intervention to tackle fraud of £8.6 billion over that period. Unfortunately, like many of these things, that number is so high because the level of fraud we have is so high.
Georgia Gould: I add that the PSFA measures are entirely new. There have previously been no powers to investigate and recover fraud from the wider public sector, outside of tax and welfare. This is some of the highest-value fraud, through procurement or businesses falsely applying for Government grants, which is currently going un-investigated because of the resource pressures that you talked about. These are landmark new powers to investigate fraud across the wider public sector that have not previously been considered.
Neil Coyle
Q
Andrew Western: Yes. We are always looking at ways that we can build stronger relationships and build trust. On specific interventions, I would argue that—although it runs contrary to the evidence that we heard from the witnesses—there is the potential, through the eligibility verification measure, to build trust not just with disabled people but with all people in receipt of benefits, because we will be able to check that they are entitled to what they have. The capture of overpayments at an earlier stage and the ability to know that people who are genuine claimants are receiving the right amount of benefit will help to build that trust.
What really erodes trust is someone being captured in a position where they think that they have, for several years, been receiving benefits to which they are entitled but then end up with, for instance, a £35,000 debt to the Department. There is a suite of activity ongoing with stakeholders. The Minister for Social Security and Disability is doing a tremendous amount of work to reach out to repair relationships where that needs to happen. That work must continue because people make a fair point when they tell us that they are fearful of the DWP. I speak to people who do not want to apply for current benefits; they want to stay on legacy benefits because they fear they will lose entitlement through the application process. That is something that we need to constantly keep under review. We need to look at what we can do to improve those relationships.
Charlie Dewhirst
Q
Andrew Western: That is an important question, on which I have sought to reassure myself. We have already been through a spending review process in which we secured additional funding for further targeted case review officers and officers in the fraud space. I actually think that the number of fraud staff in the Department is slightly concerning not because of a lack but because the number of people suggests the scale of the problem. Because of the spiralling nature of fraud, we have had no option but to significantly scale up the number of people working on both prevention and detection of it. I hope that by embracing new technology, and through data sharing and other mechanisms, we can gradually reduce that number over time. It is a damning indictment of the state that we are in with fraud and error that we have that number of people.
To answer the question, I am assured and we have secured funding for the people that we need.
The Chair
There being no further questions, I thank the Ministers, and all the witnesses, for their participation.
Ordered, That further consideration be now adjourned. —(Gerald Jones.)
Public Authorities (Fraud, Error and Recovery) Bill (Third sitting)
Thursday 27th February 2025
(1 week, 1 day ago)
Public Bill CommitteesPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 February 2025 - (27 Feb 2025)
The Committee divided: - Ayes: 6 / Noes: 10 - Question accordingly negatived.
The Chair
Before we begin, I have a few quick preliminary announcements. Members should send their speaking notes by email to hansardnotes@parliament.uk. Please, everyone, switch mobile phones and electronic devices to silent. No matter how much we want tea or coffee, they are not allowed during our sittings.
Today, we will begin line-by-line consideration of the Bill. The selection and grouping list for today’s sitting is available in the room. It shows how the clauses and selected amendments have been grouped together for debate. Amendments grouped together are generally on a similar issue. Please note that decisions on amendments do not take place in the order in which they are debated, but in the order in which they appear on the amendment paper. The selection and grouping list shows the order of debates. Decisions on each amendment, and on whether each clause should stand part of the Bill, are taken when we come to the relevant clause.
A Member who has put their name to the lead amendment in a group is called to speak first. Other Members are then free to catch my eye to speak to all or any of the amendments within that group. A Member may speak more than once in a single debate. At the end of a debate on a group of amendments, I shall call the Member who moved the lead amendment again. Before they sit down, they will need to indicate whether they wish to withdraw the amendment or seek a decision. If any Member wishes to press any other amendment in a group to a vote, they should let me know in advance.
Clause 1
Core functions of the Minister for the Cabinet Office
Question proposed, That the clause stand part of the Bill.
The Parliamentary Secretary, Cabinet Office (Georgia Gould)
It is a pleasure to serve under your chairship, Mrs Lewell-Buck. I look forward to constructive dialogue with the Committee throughout the day.
As the Committee is well aware, fraud against the public sector takes money away from vital public services, enriches those who seek to attack the Government, damages the integrity of the state and erodes public trust. The Bill makes provision for the prevention of fraud against public authorities by the recovery of money paid by public authorities as a result of fraud or error, and for connected purposes. Under part 1, the Bill authorises powers that will be used by the Public Sector Fraud Authority, part of the Cabinet Office, and under part 2, by the Department for Work and Pensions, on which the other Minister in Committee, the Parliamentary Under-Secretary of State for Work and Pensions, will lead.
I will now consider clauses 1 and 2 together. Clause 1 gives new core functions to the Minister for the Cabinet Office and sets out what can be recovered by the use of the powers under part 1 of the Bill. It describes what the Government want to achieve with part 1: to investigate more public sector fraud; to get back funds lost to the public purse through that fraud; to take enforcement action against fraudsters, whether through civil or criminal routes; and to support public authorities to prevent and address fraud against them.
The functions of the powers under part 1 will be used to deliver. As such, it is necessary that this clause stands part of the Bill. The functions are given to the Minister for the Cabinet Office, but it is important to stress that that is drafting convention, and the Minister will not use the powers personally; instead, in line with the Carltona principles, later clauses set out that the decisions may be taken and powers utilised by authorised officers and authorised investigators appointed by the Minister. Those officials will sit within the Public Sector Fraud Authority and will be experienced investigative professionals trained to Government counter-fraud profession expectations, sitting in a structure led by senior counter-fraud experts. As we heard from the witnesses, that will sit within a system of oversight, to be discussed later in the Bill.
The clause also sets out what “recoverable amounts” are. First, that means payments made as a result of fraud or error that have been identified during the course of a fraud investigation to be either fraudulent or erroneous, and which the affected public authority is entitled to recover. Later clauses cover how that entitlement is established. Error as well as fraud is included here, because if an investigation discovers that there has not been fraud, but none the less that a person has received money that they should not have, the debt powers in the Bill can, if necessary, be used to recover it. That is in line with the approach taken by others, including His Majesty’s Revenue and Customs and the DWP, but it is important to stress that the core function of the powers is to investigate and recover losses from fraud. Recovery in that way will normally be when alternative voluntary routes have been exhausted, or a person or business can repay but is refusing to do so. All attempts will be made to engage.
Secondly, “recoverable amounts” covers any other amount that a public authority is entitled to recover in respect of that fraud. That covers frauds where no payment has been made, but the fraudster has benefited in some other way—for example, fraudulently not paying what they owe—and the value of that can be determined. Finally, it also includes any interests which would be collectable in those circumstances.
Clause 2 sets out how the Minister for the Cabinet Office can carry out the functions in clause 1. The clause excludes HMRC and the DWP from the list of bodies that the PSFA will be able to take this action for as they both have significant resources and expertise in this area, as well as their own powers. Again, we will discuss that later.
Importantly, the clause does not remove or supersede responsibilities and functions that other public authorities may have in respect of fraud and the recovery of money. The powers in this part allow the Government to fill a gap and complement what already exists. The intention is that, in exercising these functions, the Minister, and the authorised officers and investigators who will use the powers on behalf of the Minister, are not simply moving investigations and recoveries that would happen anyway into the Cabinet Office. Instead, they will primarily use them in a way that is additive, to take on investigations, recover money and take enforcement action that would otherwise not have been done.
Subsection (3) says that the Minister may charge “a fee”. The PSFA does not currently charge for its investigative services, but that gives it authority to do so in the future, consistent with the cost-recovery approach set out in HM Treasury’s “Managing Public Money” guidance. “Public authority” has a broad definition set out in clause 70 and would include, for example, other Government Departments, arm’s length bodies and local authorities.
Clause 2(4) says that the Minister is included in the definition of public authority in clause 70 as far as that concerns fraud or suspected fraud against the Minister, or recovery of money for the Minister. That is to ensure that frauds against the wider Cabinet Office and its agencies and bodies can still be investigated by the PSFA. However, to ensure that there is no conflict of interest, it will be set out in guidance that the PSFA will not investigate alleged frauds within the PSFA or allegations against the Minister personally but will refer those to another agency as deemed appropriate on a case-by-case basis. That will help to ensure the integrity of PSFA investigations by keeping responsibility for investigating fraud in the PSFA, or by the Minister, external to that function, to preserve appropriate independence.
Finally, subsection (5) ensures that, in giving Ministers these functions, this part does not affect a public body’s entitlement to recover an amount or any functions it has in respect of fraud or recovery. That means existing functions and powers are not taken away from public authorities or superseded by the Ministers’ functions.
Mike Wood (Kingswinford and South Staffordshire) (Con)
His Majesty’s Opposition agree with the Bill’s principles and support the Government in what they are seeking to do, but we will be using our best efforts to try to help them do it better where we can. As the Minister said, clause 1 sets out the functions. Those functions seem perfectly sensible and reasonable, as does the way in which the Minister for the Cabinet Office is to interact with other public authorities as set out in clause 2. One of the themes that runs throughout almost all clauses of the Bill is the issue raised by multiple witnesses on Tuesday about how the functions to be allocated to the Minister or their representatives are to be exercised within the various codes of practice provided for in the Bill.
On Tuesday, the Minister seemed to indicate that the Government intend for those codes of practice to be made available for the House of Lords to scrutinise, but not for the House of Commons. That obviously makes it much more difficult for the Committee to consider the appropriateness of those functions and the various powers in the Bill. I urge the Government again to reconsider and look at how the House of Commons can be given those chances before our House completes its consideration. We recognise that that will not be possible in Committee.
In August 2022, the previous Conservative Government established the Public Sector Fraud Authority within the Cabinet Office. We welcome the Bill taking that work forward by establishing the PSFA as a separate body from the Cabinet Office, to which the Cabinet Office is able to transfer functions. We entirely support the Government’s efforts to tackle fraud and error.
The National Audit Office puts the amount lost by fraud and error in the range of £5 billion to £30 billion in 2023-24, so ensuring that the Bill works to tackle both error and fraud is crucial within the functions set out in clause 1, and we will come on to that with some of our amendments to later clauses. Equally, we wish to ensure that the functions assigned to the Minister for the Cabinet Office are proportionate and capable of independent review and oversight. We will return to these important issues with our amendments later on.
I would like to ask the Minister some questions on clauses 1 and 2, the first of which is about the definitions. The Bill does not provide definitions of “fraud against a public authority” or “error”. As we heard in evidence on Tuesday, Dr Kassem from Aston University stated that
“the definition of fraud can be a bit limiting in the current Bill, because, first, it assumes that fraud is happening for financial reasons when that is not necessarily the case. There are non-financial motives. Let us consider insider fraud—fraud committed by insiders, people working for the public authorities—which is one of the most common threats not just in the public sector, but across other sectors. A disgruntled employee can be as dangerous as someone with a financial motive. So I would stick with the Fraud Act 2006 definition of fraud, because it mentions personal gain full stop. It can be financial and it can be non-financial. That has to be clarified.”––[Official Report, Public Authorities (Fraud, Error and Recovery) Public Bill Committee, 25 February 2025; c. 6, Q3.]
Really, it must be clarified within the functions set out for the Minister for the Cabinet Office. Why should that not be the case, and how does the Minister define these things for the Bill, if it is not in line with the Fraud Act 2006? Clause 2(3) also states:
“The Minister may charge another public authority a fee in relation to the exercise of functions under this Part on behalf of, or in relation to, the public authority.”
Can the Minister clarify what we would expect that fee to be? Is it arbitrary or a set amount? Does the Minister decide or is there a particular process?
I would also like to ask the Minister about the amounts that the Government expect to recover under the Bill. According to its impact assessment, the powers in part 1 are estimated to lead to around £54 million—the best estimate for net present benefits—being recovered from public sector fraud over 10 years. Can the Minister reassure the Committee how robust that estimate is, what it is based on and how confident the Government are that the full amount of money will be recovered?
The reason I ask that is because, for the Government across the 10 years, the best estimate for fraud recovered minus costs is £23 million. Different numbers of cases could mean a loss or a slightly higher return, which could be between minus £1.5 million and £24 million. How will the Government ensure that the Bill recovers more money than is paid out in costs in administering its functions? As clauses 1 and 2 are the foundation for establishing the PSFA, the Opposition are content for them to stand part of the Bill.
Steve Darling (Torbay) (LD)
It is a pleasure to serve under your chairmanship, Mrs Lewell-Buck. I am pleased that you already see that we will become the official Opposition by the next general election, as long as the right hon. Member for North West Essex (Mrs Badenoch) continues.
The Liberal Democrats would like to state clearly that fraud is wrong and, as the Minister rightly stated, it robs the state of the ability to support people and drive the change in our communities that we all thirst for. Our concern is that this legislation is being rushed through Parliament at breakneck speed, and rushed legislation can result in dangerous consequences for those who get caught up in it eventually. I share this concern with the Minister: we legislate at haste and repent at leisure when things go wrong.
Georgia Gould
I thank both hon. Members for their constructive comments. This dialogue will be really important in scrutinising the Bill. I also welcome the support for action on fraud, and the acknowledgment that it is a significant issue.
On timing, I reassure the hon. Member for Torbay that the powers in the Bill that the PSFA is asking for are all powers that exist elsewhere in government. They have been used and tested; they are just being brought into a new context. At the moment, there are few powers to investigate or recover fraud that happens to the wider public sector, but this part of the Bill seeks to rectify that. There has been a great deal of consultation led by me, the Under-Secretary of State for Work and Pensions and our teams to get us to this point, but we will engage constructively with scrutiny as we move forward.
On the cost-benefit analysis, the overwhelming message from witnesses was that these new powers are necessary because there is a gap in investigating and recovering fraud against the wider public sector, and that the Bill will make a difference.
On the question of the £54 million and whether that is robust, that is a modest amount given we know that at least £3 billion of fraud happens against the wider public sector. It has come about through a great deal of work from the PSFA in modelling forward the current size of the enforcement team and how the powers are used elsewhere. We can therefore be confident in that figure, but if the powers work well we could grow the capacity and potentially recover more fraud.
At the moment, we know that there is fraud going on that the Government cannot investigate. A big part of this will be the deterrent and making it clear that if there is fraud in procurement or grants, there will be real powers to investigate and recover that money. That is really important both for the concrete recovery of money and for trust in how public funds are spent.
On the wider points about the importance of oversight, including of the Bill, that has been incredibly important to the Government. We thought deeply about the measures in the Bill and we will discuss that as we go through it. As for the development of the codes of practice, as I hope the Committee will see today, I will refer to the measures that are to be put in the code of practice as we go through the clauses, so that we can have some discussion about that.
I reassure the Committee that the definition of fraud in clause 70 is as it is defined in the Fraud Act 2006. That includes the main fraud offences, which are false representation, fraud by failure to disclose information when there is a legal duty to do so, and fraud by abuse of position. Hopefully that provides reassurance on that question, and I look forward to answering any other questions.
Question put and agreed to.
Clause 1 accordingly ordered to stand part of the Bill.
Clause 2 ordered to stand part of the Bill.
Clause 3
Information notices
The Chair
With this it will be convenient to discuss the following:
Amendment 10, in clause 3, page 2, line 36, at end insert—
“(1A) The Minister has reasonable grounds to suspect a person has committed fraud against a public authority if—
(a) there is an objective basis for the Minister’s suspicion based on facts, verifiable information or intelligence, and
(b) a reasonable person would be entitled to reach same conclusion based on the same facts, information or intelligence.
(1B) The Minister does not have reasonable grounds to suspect a person has committed fraud against a public authority if the Minister’s suspicion—
(a) is based in any way on—
(i) the person’s physical appearance,
(ii) any protected characteristic under the Equality Act 2010 that a person may have or appear to the Minister to have, or
(b) is based solely on any generalisation or stereotype giving rise to a belief that certain groups or categories of people are more likely to be involved in criminal activity.”
Amendment 14, in clause 3, page 3, line 10, delete “10” and insert “28”.
Amendment 9, in clause 3, page 3, line 30, at end insert—
“‘reasonable’ means the Minister must have formed a genuine suspicion in their own mind, and the suspicion that fraudulent activity has taken place must be reasonable. This means that there must be an objective basis for that suspicion based on facts, verifiable information and or intelligence which indicate that fraudulent activity will be found, so that a reasonable person would be entitled to reach the same conclusion based on the same facts and information, and or intelligence.”
Mike Wood
Clause 3 would give the PSFA the power to issue information notices to a third party, compelling them to provide information within a deadline. The amendments set out the circumstances in which that would be done and set what we think is a perfectly reasonable test of reasonableness, as well as exploring the time provided for the recipients of notices to respond. Our amendments are designed to probe some areas of this process. The powers given to the Minister for the Cabinet Office in clause 3 are wide-ranging, so we wish to ensure that these are used reasonably and proportionately, and solely in connection with the explicit purpose of the Bill. We have tabled amendments 11, 10, 14, and 9 to that end.
We have to remember that the powers can be used against individuals and small businesses. While we might expect most of the notices to be issued against multinational companies, particularly financial institutions, we also need to consider those who do not have the capacity of larger organisations. The powers must be used reasonably and effectively in all circumstances.
Amendment 11 sets a reasonableness test relating to whether the information being requested is likely to relate to the fraud in question—for example, in private text messages—and therefore whether it is reasonable to ask for that information, and whether the cost involved in recovering the required information is likely to be reasonable and proportionate. The Minister referred to equivalent powers that are available in other forms of investigation that the Government and their agencies and bodies carry out. We see the reasonableness test as equivalent to that which HMRC must meet in its notices.
We also wish to ensure that the powers are not misused, and amendments 9 and 10 are directed towards that purpose. Although clause 3 states that the Minister can use the powers only against someone
“whom the Minister has reasonable grounds to suspect has committed fraud against a public authority”
the Bill provides no definition of “reasonable”, so amendments 9 and 10 are designed to fill some of that gap.
Amendment 10 specifies that the Minister for the Cabinet Office
“has reasonable grounds to suspect a person has committed fraud against a public authority if…there is an objective basis for the Minister’s suspicion based on facts, verifiable information or intelligence, and…a reasonable person would be entitled to reach same conclusion based on the same facts, information or intelligence.”
We want to be clear about what we do not think are reasonable grounds. These would include, for example, if the Minister’s suspicions were based in any way on a person’s physical appearance—protected characteristics under the Equality Act 2010 that the person may have, or appear to the Minister to have—or were based solely on any generalisation or stereotype giving rise to a belief that certain groups or categories of people are more likely to be involved in criminal activity. We want to ensure that the powers are exercised responsibly and appropriately.
Amendment 9 gives the definition of “reasonable” as meaning that
“the Minister must have formed a genuine suspicion in their own mind, and the suspicion that fraudulent activity has taken place must be reasonable. This means that there must be an objective basis for that suspicion based on facts, verifiable information and or intelligence which indicate that fraudulent activity will be found, so that a reasonable person would be entitled to reach the same conclusion based on the same facts and information, and or intelligence.”
Amendments 9 and 10 are based on the reasonable grounds for suspicion that are contained in the PACE—the Police and Criminal Evidence Act 1984—code A.
Bearing in mind that these powers will be exercised against individuals, some of whom might struggle to provide information, we want to probe the choice of 10 days as the timeframe in which to provide information. Amendment 14 increases the minimum notice period from 10 working days to 28, which is similar to the standard minimum time that people would expect to be given to respond to written requests for information from HMRC. Given the scope of the information that might be requested, appropriate time must be given to organisations and individuals to comply. External circumstances should also be taken into account when considering the time periods. If an individual is on annual leave or off sick for a few days, they may have less than a week to provide the information or they will face significant fines. That does not seem reasonable.
We are not necessarily saying that 28 days is a better time period than seven, but I would be grateful if the Minister explained why the Government set the minimum time that they did. That is particularly pertinent, as failure to provide the information required would carry a civil penalty of £300 a day, which, for an individual, can amount to a considerable sum of money very quickly.
In its current form, without being more specific about what it means to be “reasonable” or expanding the timeframes, we are a little concerned that the powers that clause 3 gives the Minister may not include the necessary checks and balances, so I would appreciate her reassurances on that point.
Steve Darling
Perhaps the word that the shadow Minister used most was “reasonableness”. In our strange political world in recent months, the question of what is reasonable in our society has changed significantly following the change of President in the United States. What normal society would expect is “reasonable” of an elected official, both here and in America, gives me, as a Liberal Democrat, cause for concern in relation to how we can make sure that a Bill like this, which gives very significant powers to the state, sets safeguards in stone to protect our communities. We will come to that later, but I would welcome reassurance from the Minister. Although I am sure that we are all reasonable people in this room, others who are unreasonable might take power at a later stage of our lives. With this legislation, how can we put safeguards in place? I hope that we will cover that later, but the Minister’s early thoughts would be welcome.
Georgia Gould
I welcome those probing amendments, because they give me an opportunity to provide some clarity and reassurance on those important points. I will respond to them in a second, but on the question of safeguards, as I said in my introduction, we have thought very deeply about them and we are really mindful of the responsibility of these powers, so a broad range of safeguards has been built into both sides of the Bill.
On the PSFA measures, all the use of powers will be overseen by a separate team that will be accountable to an independent chair who will transparently report their findings annually to Parliament. The use of the wider powers will be overseen and reviewed by His Majesty’s inspectorate of constabulary and fire and rescue services, which has a lot of experience in this. There are various routes of appeal and review built into the powers, as well as times when applications to court are needed, and we will deal with those in some depth as we go through the clauses. Oversight is absolutely critical, and that is why we have put such a robust oversight system in place.
On clause 3, currently any information needed from first parties or connected third parties can be asked for only if they refuse to provide it, and there is no way for the PSFA to compel the information to be produced without having to go through the civil court. The clause enables authorised officers in the PSFA to compel information to be produced that is not excluded, where it is necessary, proportionate and in line with the data protection legislation, from individuals and businesses as part of a civil fraud investigation. As we discussed on Tuesday, those authorised officers will all be highly trained and subject to professional standards and a code of conduct.
In particular, clause 3 extends the Minister’s powers to include taking copies of information and requiring the individuals to provide information in a specified form. The power includes imposing duties on an individual to retain information that they already hold for longer than they would normally be required to. For example, that might apply where the PSFA requests contractual notes as part of an investigation that a person may retain for only three years. Where the request is made just before the end of that period, the information notice would also explain that any failure to supply the specified information might result in a civil penalty being imposed.
The clause details the requirements of the information notice, including the format, the timeline for compliance and the location for submission. A similar approach is used by HMRC. In practice, authorised officers would engage, where possible, on a voluntary basis before issuing an information notice. The clause also ensures that there are restrictions on the information notice from demanding “excluded material” or “special procedure material”, as defined under the Police and Criminal Evidence Act.
I will turn to the amendments, and as I said, I am very grateful for the opportunity to explain how this clause works, which I hope will provide some reassurance. Clause 3(1)(a) and (b) set out a test for issuing an information notice. An authorised officer will have the power to compel information only when it is necessary and proportionate to do so, and only when the information being requested relates to a person whom the authorised officer has reasonable grounds to suspect has committed fraud. On that basis, PSFA authorised officers will request the information only when there are reasonable grounds to do so.
The question that amendment 10 raises is, “What is meant by ‘reasonable grounds’?” It must be objectively reasonable for them to suspect fraud, given the information available to them. An authorised officer must genuinely suspect that the fraud has been carried out by the individual, and that belief will be based on facts, information and/or intelligence. Reasonable grounds cannot be supported on the basis of personal factors such as those listed in the amendment, or a hunch. It is critical to set out that authorised officers will be using those facts and will be bound by the public sector equality duty and the Equality Act.
The reasonable grounds test is a standard, widely accepted test used by various organisations, including the DWP, the Serious Fraud Office and the police. Further to that, to ensure that the reasonableness test is applied properly in practice, the PSFA will have built in place safeguards. For example, authorised officers must consider all the facts of a case known to them at that time when they decide what is reasonable. Authorised officers must ensure that each decision made relating to the use of the powers is documented and available for checking. Management checks will ensure that those procedures are followed correctly. Information holders can also request a review of a decision to issue an information notice if they feel that there were no reasonable grounds.
As I said, there will also be independent oversight of the use of powers by an independent body such as HMICFRS or the new independent chair. I am setting out this detail on the record now, but we will also be transparent about this for those who do not leaf through Hansard. The code of practice envisioned by this legislation for the PSFA elements of the Bill relates to civil penalties. As civil penalties are the mechanism for ensuring compliance with the information gathering powers, we will also set out in the code of practice, and in further published guidance if necessary, how the information gathering powers will be used in practice, as I am doing today. We will also fulfil the commitment that we made on Tuesday to talk about what will be in the codes of practice as we reach the relevant parts of the Bill.
Let me turn to the period of compliance. Our approach in the Bill accommodates the variation in size and type of fraud investigations that the PSFA is likely to take on. As such, the Bill allows information providers a minimum, critically, of 10 working days to comply. However, in practice, the information notices will be tailored on a case-by-case basis, with each being judged on its merits and with the time period applied appropriately. Similar approaches are used in HMRC. That, in turn, protects the information holder from being asked to produce information in an unreasonable timescale.
On Tuesday, we heard from John Smart, who said:
“Some of the smaller organisations might struggle to meet that 10-day requirement”.
That is why we will be tailoring the requirement. But, he also said,
“I still think it is a reasonable starting point. If you do not start with a reasonable starting point, for the larger organisations you end up deferring decision making and action being taken. I think 10 days is reasonable.”––[Official Report, Public Authorities (Fraud, Error and Recovery) Public Bill Committee, 25 February 2025; c. 46, Q81.]
As I said before, that is the minimum.
Again, we will set out the commitment to tailoring to ensure that we are proportionate and reflect the different types of organisations and individuals who might be asked for information in the code of practice or published guidance. Alongside the time period for compliance, an information provider will have the opportunity to request a review, which would include the ability to vary the time period for compliance if it was considered that a longer timeframe was needed. The current drafting outlines a five-layered process for information holders to request a review of an information notice that they have received. I can go through that detail if Committee members want me to, but I hope that that provides some reassurance on hon. Members’ points.
Rebecca Smith (South West Devon) (Con)
I thank the Minister for those points, but I seek a bit more clarification. There are references to “the Minister” in clause 3, and I want to be clear about this, because we talked a lot about the code of practice during the evidence session on Tuesday. Is the Minister saying that the code of practice will have reference to the authorised officers? So, for Hansard, where clause 3 refers to “the Minister”, it is actually more likely, through the code of practice, to be referring to the day-to-day operation of those investigators. The Minister also mentioned that the definition of reasonableness is as per other departmental records and is widely available. Just to clarify, will that also be in the code of practice so that it is easily accessible for anybody in the public to look at what that might include? I seek more clarification on those two points.
Georgia Gould
Yes, the code of practice will be much more operational guidance that will be targeted at the authorised officers and their day-to-day operational practice. It will include the information that I have set out.
The Chair
Does the shadow Minister wish to press amendments 10, 14 or 9, which were just debated, to a vote?
The Chair
With this it will be convenient to discuss the following:
Amendment 16, in clause 4, page 3, line 36, leave out “Minister” and insert “First Tier Tribunal”.
Amendment 17, in clause 4, page 3, line 38, leave out “Minister” and insert “First Tier Tribunal”.
Amendment 18, in clause 4, page 4, line 3, leave out “Minister” and insert “First Tier Tribunal”.
Mike Wood
The amendments are all about ensuring that there is not just independent oversight but an effective independent channel of appeal against information notices that does not just go back to the same organisation that issued the original notice. Clause 4 will allow for the person to whom the information notice is given to appeal the notice up to seven days after it is issued, but that appeal will go back to the Minister for the Cabinet Office—or, in practice, the PSFA—to review it and decide whether to revoke, amend or uphold the notice. As drafted, it gives the Minister significant power, as really the only responsible person who can review the decision to give the notice.
There therefore appears to be a significant lack of independent oversight. I would be grateful if the Minister could explain why there is no ability to have an independent appeal of the kind that would generally take place against HMRC decisions and notices, through the first-tier tribunal. That is why we tabled amendments 15, 16, 17 and 18: to change the appeal body from the Minister for the Cabinet Office to the first-tier tribunal. We are concerned that, given it is the Minister who has been given the power to investigate fraud, it is then a case of allowing the Minister to mark their own homework if they—or the people acting on their behalf—review the decisions themselves.
I would like to understand the Minister’s view on whether that is an effective use of ministerial time and capacity. Does she envisage that any such appeal decisions would be delegated? In the amendments, we propose to replace the Minister with the first-tier tribunal in that process, which would be equivalent to the processes that would be expected when a decision of HMRC is reviewed. Our amendments would ensure that an independent third party is involved with the review process.
I would be grateful if the Minister could explain why there should be no ability for such an appeal to be made, whether it is made immediately against the notice for information or perhaps as a second appeal stage. We need to be satisfied that there is a good reason why people who are the subject of those notices, which may be quite onerous, particularly for individuals and smaller organisations, should not have the ability to appeal to an independent body. Normally, natural justice would assume that to be the case.
Steve Darling
I concur about the safeguarding of individuals. While there may be an independent reviewer or chair, the challenge, for me, is who appoints them. If it ends up being the Minister who appoints the chair, how independent will they be? Given what we are seeing elsewhere in the world, how do we ensure that we build a structure of independence into the Bill that we may not previously have thought was needed? I am somewhat supportive of the proposals from colleagues, but equally, I look forward to hearing what the Minister has to say on the challenge.
Georgia Gould
Some points of clarity: the hon. Member for Kingswinford and South Staffordshire asked who would do the reviewing. A more senior officer from within the PSFA would complete that review, not the Minister themselves. The entire process would be overseen by a separate team who are accountable to an independent chair, and critically, who will report into Parliament to provide that level of independence.
The other important context is that the Bill also—we will come to this later—provides for the PSFA to become a statutory body, fully independent from the Minister. In the meantime, it is incredibly important that we have this process of oversight and the independent chair, as we discussed. All these issues are important for balance. We have to avoid giving fraudsters the ability to abuse the review process and frustrate investigations. As John Smart told the Committee on Tuesday, months is far too long, and adding a further route to appeal to the tribunal at that very early stage would add months, if not years, to our investigations into suspected frauds. We have tried to balance this very carefully to ensure that there are appropriate routes to review that sit within a system that is independently overseen.
I believe that we have found the right balance in the Bill, and I have explained those layers of review. They include internal review, which is the appropriate route that strikes the right balance between fairness and avoiding fraudsters frustrating the process. As I said, the internal reviewer will be a separate authorised officer, who will be—this is a requirement in clause 66—an authorised officer of a higher grade than the original decision maker. The way that these reviews are performed will be subject to oversight/ We will talk later in more detail about the oversight in the Bill, but it will include the inspections by HMICFRS and the day-to-day oversight by an independent chair, which could include live cases.
I explained in the previous debate—I did not go through the detail, but I can do so—the stages of an information notice going through if someone still does not agree that they should provide the information. Ultimately, it is really important that if a penalty is issued for non-compliance, the information provider can appeal to the relevant court against that penalty, so there is a formal appeal to a court at the end of the information-gathering process if it gets to that place. However, the intention of the powers—as I said, this will be written into the code of practice—is very much to work alongside those organisations that are gathering information, and to be proportionate to their size and the requests put forward, so I believe we have found the right balance.
Mike Wood
I thank the Minister for those responses, but I think that the first-tier tribunal is perfectly capable of dismissing applications that are without merit, without significantly extending the time. Given the importance of an independent appeal mechanism, I wish to push the amendment to a vote.
Question put, That the amendment be made.
Mike Wood (Kingswinford and South Staffordshire) (Con)
I beg to move amendment 12, in clause 4, page 3, line 33, at end insert—
“or of the duration of the period mentioned in section 3(4)(a)”.
The Chair
With this it will be convenient to discuss amendment 13, in clause 4, page 4, line 2, at end insert—
“, including by extending the duration of the period mentioned in section 3(4)(a) where satisfied that the person is reasonably unable to comply with the requirement to provide the information within the time required by the notice”.
Mike Wood
Amendments 12 and 13 are in a similar vein to amendment 14 —they allow the individual or organisation issued with an information notice to apply to the independent body or board for an extension to the 10 working days within which they are currently required to provide information requested in the notice, if they are reasonably unable to comply. Sorry, have I skipped ahead a section?
Neil Coyle (Bermondsey and Old Southwark) (Lab)
Feel free to skip ahead to the conclusion.
Mike Wood
Sorry, it has been a while since I have been on a Bill Committee.
The amendments would allow the individual or organisation to apply for an extension to the 10 working days within which they are currently required to provide information requested in an information notice, if they are reasonably unable to comply. This is a common sense approach to support people who are engaging with the process and prevent them from being hit with penalties, which was never the intention of the legislation. This is also important because we do not know precisely what information the Minister will be able to ask individuals to provide, other than that an information notice cannot require the giving of particularly sensitive—such as excluded or special procedure—material, as defined in sections 11 to 14 of the Police and Criminal Evidence Act 1984. This includes confidential business records or journalistic material. Otherwise, the Minister for the Cabinet Office has a very open-ended power to require different types of information. It would be helpful if the Minister could explain whether the Government would consider allowing those issued with information notices to apply specifically for an extension if they cannot reasonably provide the information within the time period requested.
Steve Darling
I can add very little to what the shadow Minister said. Again, I am broadly sympathetic on the need to have these safeguards in the legislation, and on not knowing what the practice notes are. We are very much in the dark, so that does give us cause for concern.
Georgia Gould
The critical thing to note here is that we have been very clear in the Bill that 10 days is a minimum. As we heard in evidence, some organisations will find it very easy to provide the information within 10 days; others will find it harder. As I have already set out, we will ensure that responding to different kinds of organisations proportionately is referenced in the code of practice.
I previously explained why we believe that the time limits in the Bill for information requests are appropriate, and why we believe that internal review strikes the right balance in preventing fraudsters from frustrating the process. The current drafting includes powers for authorised officers to vary the duration of an information notice in clause 4. The clause allows an information notice to be varied subject to the outcome of an internal review. A variation of a notice can include amending the timeframe to comply with a request if it is found that a longer timeframe is required.
We have discussed how the Bill allows information-providers a minimum of 10 working days to comply, which in practice will be tailored on a case-by-case basis, with each case judged on its own merits and the time period applied appropriately. This is a similar approach to that taken by HMRC, for example: an authorised officer would take account of the nature of the information or documents required and how easy it will be for the person to provide or produce them. That, in turn, protects the information-holder from not being asked to produce information within an unreasonable timescale. In response to the amendment, I ran through what the reasonable grounds test will be and the kinds of thinking that authorised officers will have to go through to determine what information they will gather. That includes writing it down so that their thought processes in requiring information can be reviewed.
Steve Darling
I welcome that reassurance from the Minister, which we will take onboard.
Mike Wood
I thank the Minister for her response, which offered some moderate reassurance. We would be comfortable if either it was included in the Bill or we at least had sight of the code of practice, which will actually define that decision-making process. A fundamental flaw of this Bill Committee is that we are being asked to make decisions on something that may be produced in the future, of which we have no advanced sight. For now, I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Question proposed, That the clause stand part of the Bill.
Georgia Gould
Clause 3 introduces a civil power that allows authorised officers to compel information from first and third parties, similar to that used by HMRC. Clause 4 introduces a right to request a review of a decision to issue an information notice within seven days of a notice being issued. The policy intention is that this provides adequate time for an individual or business to request a review of a decision to issue an information notice, and sets a time limit for a review that will balance any attempts that might be made to aggravate the information collection process by slowing down the fraud investigation unnecessarily. During the review process, authorised officers will work with information-holders to give them every opportunity to comply.
Steve Darling
The Minister referred to a review process; it would be really helpful if the Committee could be aware of how long that process is likely to take.
Mike Wood
Clause 4 gives the Minister a considerable amount of power to compel individuals, as well as organisations, to provide an unspecified range of information within what could be very tight timescales, on pain of a fine of £300 a day if they fail to comply. The only route to appeal these powers is going back to the person or organisation that is exercising them, and we are concerned about the natural justice of this approach.
The legislation, as drafted, involves no impartial third party in the review process on a case-by-case basis, so it leaves individuals with nowhere else to go if they disagree with what is being asked for, or cannot practically comply with the request in the specified timeframe. Our amendments aim to balance these powers, and I am naturally disappointed that the Minister was unable to consider accepting at least some of them.
Georgia Gould
First, it is important to set out that these powers will be used by authorised officers who sit within a professional standard. They are highly trained and have a code of ethics that they apply. It is a deliberately limited group of people to ensure that we have full oversight. The kind of decisions that they make will have to be written down, so they can be overseen by the team within the Cabinet Office, which is answerable to the independent chair and to another independent body, and that is likely to be HMICFRS. I think I have already set out, and it is in the Bill, that the reviews on a case-by-case basis will have to be done by another authorised officer who is of a higher grade than the one who made the decision. There will be no set time, but we will set out a range within the wider guidance.
The intention of the Bill is to ensure that we prevent and recover fraud against the public sector. We want to be reasonable and proportionate, and as I have said, we will set out further information about the size and scale of organisations and timeframes within the code of practice. What we really need to avoid is organisations that have committed fraud using appeals to frustrate the process and keep this going for ages, so that money is moved and we lose the ability to recover critical public funds. We think that a huge amount of oversight has been put into this overarching package, but we have to ensure that we allow authorised officers to get the information they need and recover fraud. Finally, it is important to remember that, if we go through a process where somebody does not provide that information, and a fine is levied, they are able to apply to the courts at that point. There is that fundamental backstop to the system.
Question put and agreed to.
Clause 4 accordingly ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Gerald Jones.)
Public Authorities (Fraud, Error and Recovery) Bill (Fourth sitting)
Thursday 27th February 2025
(1 week, 1 day ago)
Public Bill CommitteesPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 27 February 2025 - (27 Feb 2025)
The Parliamentary Under-Secretary of State for Work and Pensions (Andrew Western)
It is a pleasure to serve under your chairship, Mrs Lewell-Buck. Clause 5 is an explanation of the principles related to information sharing that pertain to the Public Sector Fraud Authority and the Cabinet Office. It sets out how the disclosure of information would work for the purpose of facilitating the Minister’s exercise of the core functions. It refers to how the Minister may use information disclosed under subsection (1); the specific purposes for which it may be disclosed; and what the Minister may not use information for. Information must not be used for any purpose other than the purpose for which it was disclosed and may not be disclosed to any other person without the consent of the Minister. I commend the clause to the Committee.
Mike Wood (Kingswinford and South Staffordshire) (Con)
Clause 5 will give the Minister enormous powers to request and share information for the purpose of facilitating the Minister’s exercise of the core functions under the Bill. Given that the Minister’s core functions are to decide whether to investigate and take enforcement action, we are concerned that almost any information could be shared to facilitate the making of those decisions.
Likewise, the Minister may share information onward. If they give consent, the information may go further yet. Again, this is a case of the Minister marking their own homework. They get to decide who knows what and whether it gets shared onwards, without any external oversight from an impartial third party. I would be grateful if the Minister explained what sort of information the Government envisage being requested, under what circumstances, and what safeguards will apply to the sharing of that information.
Andrew Western
I thank the shadow Minister for his question. I would not want to second-guess the specifics of what may be required in the sharing of information on a case-by-case basis; clearly that sort of speculation may restrict us unnecessarily. What I would say, however, is that the independent oversight powers laid out for the execution of the PSFA’s work would be in place to ensure that if anybody, up to and including the Minister, were considered to have overstretched their powers, it would be able to comment and investigate as necessary.
Question put and agreed to.
Clause 5 accordingly ordered to stand part of the Bill.
Clause 6
Amendment of the Investigatory Powers Act 2016
Andrew Western
I beg to move amendment 1, in clause 6, page 4, line 28, in column 1, after “Office” insert
“, so far as relating to the Public Sector Fraud Authority”.
This amendment limits the designation of the Cabinet Office as a relevant public authority for the purposes of Part 3 of the Investigatory Powers Act 2016 so that it is designated only so far as relating to the Public Sector Fraud Authority.
Andrew Western
I am sure that colleagues will agree that the amendment is straightforward. It will limit the designation of the Cabinet Office as a relevant public authority for the purposes of part 3 of the Investigatory Powers Act 2016, so that it is designated only in so far as it relates to the Public Sector Fraud Authority.
Clause 6 sets out the purposes of the amendment to the 2016 Act and is straightforward in its terms. It will make a small tweak before the entry for the Common Services Agency for the Scottish Health Service to insert “Cabinet Office” and the relevant provision.
Mike Wood
As the Minister says, the clause will add the Cabinet Office to the Investigatory Powers Act 2016. The Act governs the powers available to the state to obtain communications and communication data, provides statutory safeguards and clarifies what powers different public authorities can use and for what purpose. This legislation will give the Cabinet Office further and greater investigatory powers.
Government amendment 1 seeks to clarify that this applies not to the whole of the Cabinet Office, but to the Public Sector Fraud Authority only. I am glad that the amendment will rectify that fairly major drafting error. Obviously, the Opposition support the amendment.
The Parliamentary Secretary, Cabinet Office (Georgia Gould)
I am sorry to have arrived late. Clause 6 will provide essential powers to obtain communications data from telecommunications providers, as and when necessary, as part of an investigation into fraud against the public sector. As a result of the clause, the PSFA will be listed under column 1 of schedule 4 to the Investigatory Powers Act 2016 and will thereby be granted the power to request communications data—the how, where, what and when, as opposed to the content, of communications—for the purposes of investigating suspected fraud against the public sector. The clause will not give the PSFA surveillance and covert human intelligence powers.
The precise listing of the PSFA in schedule 4 will not permit self-authorisation to use the relevant powers; a request for communications data in the course of a criminal investigation must be approved by the independent Office for Communications Data Authorisations. The powers also come with extra oversight from the Investigatory Powers Commissioner’s Office, which will inspect the designated communications data single point of contact that facilitates the lawful acquisition of communications data and effective co-operation between the IPCO and public authorities that have these powers.
I welcome the Opposition’s support for Government amendment 1, which is necessary to align us with the Home Office’s new approach to restrict powers to specific teams in other Departments within the same schedule. The amendment will change the way the Department appears in schedule 4 to the Investigatory Powers Act, as it will restrict the use of the powers to the Public Sector Fraud Authority only, not the Cabinet Office as a whole. The amendment will ensure that the use of the powers is properly restricted and that there are no unintended consequences for other parts of the Cabinet Office.
I commend clause 6, as amended by Government amendment 1, to the Committee.
Amendment 1 agreed to.
Clause 6, as amended, ordered to stand part of the Bill.
Clause 7
Police and Criminal Evidence Act 1984 etc powers
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Schedule 1.
Clauses 8 and 9 stand part.
Georgia Gould
Clause 7 and schedule 1 cover the investigative powers in the Police and Criminal Evidence Act 1984. Clause 8 will give the PSFA a legal route to apply to a court for an audit in relation to property that has come into its possession in the course of a fraud investigation. Clause 9 will bring the PSFA under the oversight of the Independent Office for Police Conduct for serious complaints about its use of PACE powers.
Clause 7 will designate authorised investigators with the necessary authority to use limited provisions from PACE within the remit of public sector fraud investigations. These include powers to apply to the courts for a warrant to enter and search premises and to seize evidence, and special provisions to apply to the courts to gain access to certain types of material that are regarded as excluded material or special procedure material.
These are criminal investigation powers and will only be used in criminal investigations to enable all reasonable lines of inquiry to be followed and all relevant evidence to be collected. PSFA staff must be specifically authorised by the Minister before they can use the powers in the clause. Authorised investigators will be able to access and process evidence under the same conditions applicable to the police, ensuring that robust investigative protocols are followed. PACE has its own code of practice, and authorised investigators will adhere to the provisions that apply to the PSFA’s PACE powers, in particular PACE code B, which deals with the exercise of powers of entry, search and seizure.
Clause 7 is fundamental in reinforcing the Bill’s objective of combating public sector fraud effectively by equipping investigators with powerful investigative tools, governed by long-standing safeguards. The provision of such powers is essential and reflects our commitment to holding to account those who defraud public resources, maintaining the integrity of public administration.
Schedule 1 will modify the provisions of PACE adopted in clause 7 so that they apply to authorised investigators within the PSFA when they are conducting criminal investigations into fraud offences committed against the public sector. Clause 7 will enable these modifications to have effect; they include equating authorised investigators with constables for the relevant sections of PACE, clearly defining the range of their responsibility and authority. An amendment to replace “articles or persons” with “material” in schedule 1 is specifically intended to clarify the scope of investigations conducted by the PSFA. By defining the term more narrowly with reference to “material”, it reflects the fact that the PSFA will not be conducting searches of individuals.
While detailed stipulations regarding the retention and handling of seized material are set out in PACE, schedule 1 will provide the essential adaptations necessary for the authorised investigators to carry out their roles effectively while adhering to established legal safeguards. Overall, schedule 1 is necessary to equip authorised investigators with precise, tailored powers from PACE so that they can enforce the legislative aim of combating fraud within the public sector.
Clause 8 will give the PSFA a legal route to apply to a court for an order in relation to property that has come into its possession in the course of a fraud investigation. The order will determine who the property should be returned to and whether changes need to be made to the property before it is returned or, if appropriate, destroyed, subject to suitable safeguards.
The PSFA will not routinely need to use this power. It will use it only in three specific situations: first, when there is conflicting evidence as to who the property should be returned to; secondly, when it is not possible to return property to its owner, and the PSFA is otherwise liable to retain it indefinitely; or, thirdly, when it has been identified that the property could be used in the commission of an offence. Clause 8 will protect the PSFA in situations in which it could otherwise face having to retain property indefinitely, at ongoing cost to the taxpayer, and where it cannot return the property to its owner. It will ensure effective management and disposal of items, helping to prevent misuse while reducing the administrative burden.
The use of a magistrates court to determine the appropriate course of action is a critical safeguard. This external judicial oversight ensures transparent and lawful disposal decisions. A mandatory six-month waiting period is built into the process before property can be disposed of or destroyed. This period will allow any interested parties to make claims on the property. However, if a magistrates court orders that the property be returned to its owner, there is no waiting period for that return. Further application to court can be made if initial orders do not resolve ownership or disposal issues, ensuring ongoing flexibility and fairness in property management. Equipping the PSFA with these powers is vital for appropriately concluding fraud investigations and reflects similar practices in other Government Departments.
I turn to clause 9. The PSFA’s use of PACE powers will be subject to robust internal and external scrutiny. Elsewhere in the Bill, clauses 64 and 65 set out provisions under which His Majesty's inspectorate of constabulary and fire and rescue services will work with the PSFA. Clause 9 amends the Police Reform Act 2002 to extend the functions of the director general of the Independent Office for Police Conduct to include oversight of public sector fraud investigators and enables them specifically to consider the PSFA’s use of PACE powers and associated investigations. In doing so, this clause enables the IOPC to be engaged where necessary to investigate death, serious injury, accusations of staff corruption or serious complaints against the PSFA’s use of PACE powers, although we hope that none of those will come to be.
The amendments made by clause 9 also include allowing the Minister to issue regulations conferring functions on the director general in relation to these investigations. In practice, this enables the Minister to detail in due course the specific remit of the IOPC in relation to the PSFA. This clause represents a typical approach to engaging the IOPC in legislation, similar to that of other law enforcement agencies.
The clause will also enable the sharing of information between the director general, the Minister and those who act on their behalf. Additionally, it will enable the sharing of information with the Parliamentary Commissioner for Administration to facilitate potential collaborative investigations with the IOPC. The clause will ensure that any information sharing complies with existing data protection and investigatory powers legislation. Incidents and complaints will be either self-referred from the PSFA or referred to the IOPC via a third party. Any potential cases of serious injury or death that occur in the exercise of the PSFA’s PACE powers would be automatically referred to the IOPC for review.
The use of the independent complaints function offered by the IOPC is a key element of the oversight landscape, ensuring that the PSFA is held accountable to the highest standards in the exercise of PACE powers, and providing confidence to the public that the Government take their responsibilities in using the powers seriously. I went through a lot of detail there, but I know that the Committee is concerned about the proper oversight of powers, as it should be.
Mike Wood
Clauses 7 to 9 give authorised investigators the powers to enter and search premises and execute search warrants, and powers for the seizure, retention and disposal of property. Those are obviously extensive powers with potentially significant consequences. While strengthening powers to tackle fraud is welcome, we have some concerns. For example, clause 7(3) states:
“An authorised investigator is an individual who is authorised by the Minister to exercise the powers conferred by this section.”
The clause would extend some PACE powers to authorised investigators at the PSFA to investigate offences of fraud against a public authority.
An authorised investigator is defined as a Cabinet Office civil servant of at least higher executive officer grade. What training will those investigators have in order to carry out their functions appropriately? In evidence earlier this week about public sector investigators, Dr Kassem said:
“Are they trained and do they have the proper skills to enable them to investigate without accusing, for example, innocent people and impacting adversely vulnerable individuals? That would be the main challenge, in my view.”––[Official Report, Public Authorities (Fraud, Error and Recovery) Public Bill Committee, 25 February 2025; c. 6, Q2.]
Paragraph 3(2)(b) of schedule 1 states that an authorised investigator may be “a higher executive officer”, which is adding to the positions specified in PACE. The comparable position in the police appears to be specified as
“a police officer of at least the rank of inspector”.
Is the Minister satisfied that a higher executive officer is of equivalent rank and experience to a police inspector? Salary bands would suggest that they are not. A quick search suggests that the starting salary of a higher executive officer may be as little as £38,000, whereas a police inspector in London would typically be on at least £61,000. That suggests that there will be some disparity in the level of seniority that one might expect between the two positions. Is she satisfied that a higher executive officer has the seniority for the very far-reaching powers that the Bill would give them?
Turning to clause 8, it is welcome that there is a role for the magistrates court—we finally have some external oversight—where a Minister must apply to make a decision about an individual’s property.
Clause 9 amends the Police Reform Act 2002 so that an individual may go to the director general with complaints or misconduct allegations in relation to the Public Sector Fraud Authority. However, it appears that there remains discretion for the Minister, who only “may” make regulations conferring functions on the director general in relation to public sector fraud investigators and “may” disclose information to the director general. Does the Minister intend to make those regulations? What may they contain? If regulations are made under those provisions, what parliamentary procedure will they be subject to?
Georgia Gould
I thank the shadow Minister for those questions. As he said, these are important powers, and it is critical that the right training is in place. I reassure him that all these authorised officers will have relevant training to the standard that police officers have for the use of the PACE powers. As he set out in his remarks, an application for search warrants must be made to a magistrate, so there is already an external body ensuring that they will be used correctly.
Another critical component of the PSFA’s use of the powers is that if an authorised officer is visiting a property, they will be accompanied by a police officer and will not go their own, so we have not included powers of arrest because of the nature of the PSFA investigations as separate to the Department for Work and Pensions. The powers sit within a range of safeguards, some of which have been mentioned. To remind Members, His Majesty’s inspectorate of constabulary and fire and rescue services will also oversee the use of all these powers, as it has experience of doing that. The powers will be overseen in any serious circumstances by the Independent Office for Police Conduct.
Question put and agreed to.
Clause 7 accordingly ordered to stand part of the Bill.
Schedule 1 agreed to.
Clauses 8 and 9 ordered stand part of the Bill.
Clause 10
Acting for another public authority
Question proposed, That the clause stand part of the Bill.
Georgia Gould
As I have set out, the Bill provides the key powers to investigate suspected fraud against the public sector. However, to be able to deliver a holistic counter-fraud service and recover vital funds lost to fraud and error, powers are needed to act on behalf of other public authorities for recovery action. That is what clause 10 outlines. The PSFA will already have conducted investigations before the recovery phase and will know the background to the case and the people and businesses involved. It will be able to leverage that information and those relationships to secure recovery, prioritising voluntary repayments first. It will then be able to utilise the proposed recovery powers already used across Government to get back fraudulent funds where people can afford to repay their illicit gains but are refusing to engage with us.
The recovery of fraudulent funds is complex, as is fraud itself. In 2021-22, the Government’s fraud landscape report found that only 23% of fraud losses were recovered. That is not good enough. Having a central recovery function within the PSFA will allow it to develop the expertise and capability required to drive effective recovery action on behalf of other public bodies. Providing the option to keep some of the recovered funds, subject to agreements with the public bodies concerned, helps to fund the development of that recovery expertise and provides value for money for the Government and taxpayer.
Clause 11 outlines the requirement to issue a recovery notice before proceedings can be brought to a court or tribunal. The notice must outline what the Government believe is owed and why. It must also provide information as to how the amount can be voluntarily repaid. Once issued, the liable person has a minimum of 28 days to respond. The recovery notice will effectively signal the end of the PSFA investigation.
During an investigation, a suspected liable person will already have had the opportunity to make their case and provide evidence to support their position. This provides the liable person with further opportunities to positively engage on the matter, either through voluntary repayment or by providing additional evidence. It also provides them with ample opportunity to prepare for a potential future court or tribunal proceeding. The issuing of a recovery notice is therefore an important step that promotes fairness and transparency in proceedings by providing a liable person with an overview of the position.
Clause 12 provides a key safeguard for the use of the recovery powers. During an investigation, the PSFA will collect and assess evidence to determine whether a liable person or business received payments made as a result of fraud or error. It will outline its reasonings in the recovery notice. However, it will be able to use the proposed recovery powers only if a liable person agrees and a court or tribunal has made a final determination of what is owed.
We will not be making unilateral decisions as to what is owed. Instead, this process firmly embeds independent judicial decision making. If a liable person disagrees with the determinations, they can present their case in a court or tribunal. If a liable person agrees, we do not need to seek confirmation from a judge, making important judicial time and cost savings and ensuring that we do not further overburden the judicial system.
Those are all important steps in commencing our recovery action. The positive impact of the Bill is predicated on being able to effectively recover funds identified as being lost to fraud or error. We have already agreed that recovery is a vital new core function of my Department, and it is one that we should strive to ensure can operate effectively to return money lost to fraud and error to the public purse.
Mike Wood
Clause 10 allows the Minister for the Cabinet Office to act on behalf of another public authority to recover a recoverable amount, including bringing court or tribunal proceedings, and recovered money will be returned to the other public authority unless it is agreed that the Minister can retain some or all of it. We have some questions about what has to be agreed ahead of time. Can the Minister just act, or do they need prior approval from the public authority beforehand, so that there is clarity about the basis on which the Minister for the Cabinet Office is acting and any division of recovered funds?
Clause 11 sets out the recovery notice that the Minister must give before proceedings can be brought to court or a tribunal, and what is included in it. How is it decided how much can be recovered? What assets are taken into account, and what is the process before the legal system becomes involved?
Clause 12 sets out that the recovery methods can be used only to cover the amount where the liable person agrees or a court or tribunal has determined the amount is recoverable. Where the liable person does not engage, what mechanisms exist to encourage them to do so? Are there penalties if a court or tribunal is involved, and how long is the legal process typically expected to take, given current capacity? What does capacity look like at the moment? We feel that, in principle, the powers could be proportionate, but that depends on how they are to be exercised. I would be very grateful if the Minister clarified some of those points.
Georgia Gould
The first point to clarify is that before any investigation and any debt recovery are started, there would be a vulnerability test on that individual, and that would be part of the basis for the decision making. As for whether there was a voluntary agreement about the recovery of debt, a conversation would happen with the individual, but there is a limit to the amount that would be recovered—up to 40% of their assets in their bank account for fraud and 20% for error. In terms of whether people would try to frustrate the process by unnecessarily reviewing it, one of the features of the Bill is that it can include interest on the money that is paid, so that is a disincentive to continue to drag out the process, and the matter can be resolved as quickly as possible—and voluntarily.
On the initial phase of the PSFA’s investigatory and debt recovery work, if there is a limited number of officers, we do not expect a high burden on the court system—we expect less than double digits to be taken through initially—and we believe that the provision around interest is a key disincentive against frustrating the process.
Question put and agreed to.
Clause 10 accordingly ordered to stand part of the Bill.
Clauses 11 and 12 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Gerald Jones.)
Public Authorities (Fraud, Error and Recovery) Bill (Fifth sitting)
Tuesday 4th March 2025
(3 days, 1 hour ago)
Public Bill CommitteesPublic Authorities (Fraud, Error and Recovery) Bill 2024-26 Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 4 March 2025 - (4 Mar 2025)
The Chair
I remind Members to send their speaking notes by email to hansardnotes@parliament.uk and to switch all electronic devices to silent, and that tea and coffee are not allowed during sittings. Should any Member want to speak to any clause or amendment, please bob in the usual way as you would in the Chamber and try to catch my eye.
Clause 13
Penalties etc
Question proposed, That the clause stand part of the Bill.
Georgia Gould (Queen’s Park and Maida Vale) (Lab)
It is a pleasure to serve under your chairship, Mrs Lewell-Buck.
Clause 13 allows the Government to use the proposed recovery powers to recover late penalty payments and associated interest deriving from the civil penalty regime that is introduced in chapter 5 and any additional relevant costs, either awarded by a court or tribunal or incurred in exercising the recovery powers. In all of these cases, money will be owed to the public purse. Once it has been recovered, it can be used for public good. If these sums were to remain unrecovered, it would not have this positive impact.
We are building strong safeguards and appeal routes into all our measures, including on the application of penalties. Decisions to impose a penalty will be taken by authorised officers, and we have discussed the training that they will have. It is also intended that the debt recovery powers will be overseen by the independent oversight mechanisms, which we will turn to later in the session. Where we are justified in using the proposed recovery powers to seek payments directly from bank accounts and pay-as-you-earn earnings, we want to be able to use them. The penalties and costs will all derive from the fraud investigations that the Public Sector Fraud Authority will carry out.
Clause 14 restricts when chapter 4 recovery powers can be used to recover penalties. They can only be used when the timeframe for appealing a penalty has passed without any appeal being bought or any appeal against the penalty has been finally determined by a tribunal. Penalties are issued for important reasons to encourage compliance and to help make the whole Bill work effectively, and to help make the PSFA effective in its efforts to tackle fraud against the public sector.
Penalties are not something that can be put into the back of a drawer and forgotten about. Fraud is an expensive business for Government. It costs us money when people defraud us. It costs us money to investigate, to take proceedings through courts and to pursue recovery. It is not fair that these costs are shouldered by law-abiding citizens. It is right that those who do not follow correct procedures are penalised and have to pay.
Clauses 13 and 14 enable us to hold debtors to account, driving up recovery of what is owed by letting us use the recovery powers in a wider but proportionate manner and with the appropriate safeguards and appeal routes in place. However, this has to be done with respect of due and proper process, which is exactly what this clause mandates. These clauses are important safeguards that rightly prioritise the liable person’s right to appeal a penalty decision over the recovery of the penalty. It provides us with operational flexibility to recover a range of debts, driving up the value for money of our operations. I commend clauses 13 and 14 to the Committee.
Mike Wood (Kingswinford and South Staffordshire) (Con)
Clause 13 sets out that the Minister can use powers to recover amounts from a penalty, such as late payment, but also relevant costs to be awarded by a court or tribunal. Relevant costs rightly also include costs that are reasonably incurred by the Minister in exercising the powers in chapter 4.
Can the Minister share details on what this measure might include? What is reasonable and what are the expected amounts that might be recovered in this way? Does this also cover legal costs—for example, court fees and legal representation? Will it include investigatory costs, such as the use of forensic accountants or data analysts? Does it extend to administrative costs, such as the work of civil servants processing cases? How is reasonableness to be determined within these clauses? What criteria or guidelines will be used to assess whether a cost is reasonable and will there be an independent review process to prevent excessive or disproportionate costs from being been claimed? Will the affected individuals or entities have the right to challenge, at an appropriately early stage, costs that they deem to be unreasonable?
On the expected scale of the costs, do the Government have an estimate of the average cost that could be incurred and recovered under these provisions, and will there be caps or limits on the amount that can be recovered from an individual or organisation? Does the Minister expect those to vary? How will cost recovery be monitored and reported to ensure transparency?
Given the potential financial impact on those subject to enforcement proceedings, it is crucial that clear safeguards, transparency and accountability mechanisms are in place to ensure that costs remain proportionate and fair. I would appreciate further detail from the Minister about how these costs will be defined, managed and reviewed.
Clause 14 provides that the Minister can recover an amount due in respect of a penalty only when the time for appealing has passed without an appeal, or any appeal has been finally determined. We think that that is perfectly sensible and will support the clause.
Steve Darling (Torbay) (LD)
In the oral evidence, Professor Levi highlighted some powers regarding asset freezing that the police have had since 2017. I would welcome the Minister’s reflections on whether these powers could have a significant impact in this area of the law—in particular, whether they would apply to international organisations, and the impact on individuals. I think that would be helpful to the Committee.
Georgia Gould
I welcome the support for the clause. To clarify, the operational costs of running PSFA operations and investigations will not be included in reasonable costs. There is work being done through the test and learn period by the enforcement unit to inform those costs, and guidance will be published in due course. As I have set out previously, there will be independent oversight of the full use of these powers, by a team that will answer to an independent chair. They will report to Parliament and will look at all aspects of the use of these powers, including the cost. If it is not established by agreement, we will have to apply to a court or tribunal to determine what the debt is, so there will be that added aspect of independence.
For asset seizing, we can apply for orders through the courts. In evidence we heard from the financial industry, there were questions about how the powers will work together, and there is work going on to respond to some of those questions. Our teams are working very closely with those financial bodies.
Question put and agreed to.
Clause 13 accordingly ordered to stand part of the Bill.
Clause 14 ordered to stand part of the Bill.
Clause 15
Payable amounts
Question proposed, That the clause stand part of the Bill.
Georgia Gould
Before I go into the detail of the clauses, I want to take a minute, as we are entering a new chapter, to make some opening remarks about the wider powers.
Chapter 4 of part 1 introduces debt recovery powers. In 2021-22, detected fraud and error outside of tax and welfare was £823 million, of which only £190 million—23%—was recovered. Alex Rothwell, from the NHS Counter Fraud Authority, told us in his evidence that the Department recovered only 12% of fraud and error. There is a long way to go in this space, which is why the powers are so important.
We know that recovery of fraud-related debt can be challenging. Debt recovery powers are limited to a small number of organisations and are therefore not available across the public sector. The Public Accounts Committee, Home Affairs Committee and National Audit Office have all strongly challenged the Government to do more across the public sector to take action on fraud loss. As part of the Bill, we are bringing debt recovery powers into the PSFA to enable the Government to better recover fraud debt outside of tax and welfare. We heard from Alex Rothwell that these powers will be incredibly helpful for us to recover more money.
The powers are not new to Government—HMRC and the Child Maintenance Service already have the power to recover debt from bank accounts, and DWP and the Child Maintenance Service can recover debt from earnings. We will utilise best practice from those organisations in operating the powers. Although we initially expect to use them in just a small number of cases, we hope that this will grow as and when the PSFA enforcement unit expands.
We have consulted widely with a range of fraud and debt stakeholders, including public bodies, academics and non-public sector groups. Banks, charities and civil liberty groups have been engaged so that we can incorporate lessons learnt from the experience of debt recovery processes in Government. We know that those in debt can be in challenging situations, which is why the use of the powers will follow best practice across Government, including the Government debt management function standards, and guidance such as the debt management vulnerability toolkit.
Importantly, the powers will only be used once efforts to engage and secure voluntary repayment have been unsuccessful. The only people and companies who will face the powers are those who have the means to repay, but who refuse to do so. Those affected by the powers will have the right to make representations, apply to vary orders, request an internal review, and finally, appeal to the tribunal. The powers will be used by trained authorised officers who will be subject to independent oversight. The debt recovery powers in the Bill balance the need to recover public money efficiently, while ensuring that recovery is fair and proportionate, with robust safeguards to protect those in vulnerable situations.
Clause 15 refers back to clauses 1 and 13 to define a payable amount as: a payment made as a result of fraud or error, as discovered by an investigation into suspected fraud; a penalty under the civil penalty regime established by chapter 5; and, finally, relevant costs. This creates a limitation as to the debts that the Government will be able to use the chapter 4 recovery powers on, specifically, those determined by and during an investigation into suspected fraud, including from associated penalties.
We seek these recovery powers purely to further the counter-fraud activity that we will carry out to tackle fraud against the public sector. We do not intend to become a general debt recovery agency for the Government, and clause 15 confirms that. It reflects the operational context and purpose of the PSFA and its focus on tackling fraud and error.
Further to that, clause 16 confirms that we will be able to seek alternative recovery action through the civil courts. Although the Bill will provide the powers to seek recovery directly through bank accounts and PAYE earnings, these might not always be the most appropriate or effective recovery route. For instance, the liable person might hold significant other property assets or keep assets or money abroad. In those cases, it would be unfair for us not to seek recovery.
We therefore wish to work through established legal procedures to ensure that we can seek to pursue recovery through the most appropriate and effective mechanisms—for example, liability orders. The importance of clause 16 is that it confirms that the Bill does not limit existing powers. I commend clauses 15 and 16 to the Committee.
Mike Wood
As the Minister said, clause 15 establishes that a payable amount is a recoverable amount as defined in previous provisions of the legislation, while clause 16 further grants the Minister the power to apply to the county court for a recovery order. That ensures that a recoverable amount is treated as an enforceable payment under section 85 of the County Courts Act 1984, or as if it was directly ordered by the court.
While the mechanism for recovery is now clear, there are important practical questions about its implementation. First, we would like further reassurance about the impact on the county court system. What projection have the Government made regarding the number of cases that they expect to be brought under these provisions? Given the existing backlog in county courts, what assessment has been made of the additional burden that these measures will place on the system? Has the Minister engaged with her colleagues at the Ministry of Justice and His Majesty’s Courts and Tribunals Service to ensure that county courts have the capacity and resources to handle these cases efficiently and in a timely manner?
To develop further the issue of efficiency and speed of resolution, what is the expected timeframe for these cases to be resolved once an application is made? Do the Government anticipate delays due to a high caseload in county courts, and if so, what mitigations are they putting in place to help to deal with those delays? Will the Government publish guidance or at least a framework on the expected process and timeline for obtaining a recovery order?
It is essential that these powers do not result in undue delays, excessive court burdens, or legal uncertainty for those subject to a recovery order. Further clarification from the Minister would help to ensure that this system functions fairly and efficiently—balancing the need for enforcement and fairness to the taxpayer to recover sums that are owed, with the available judicial capacity.
Georgia Gould
We have published an impact assessment. That says that with the current size of the enforcement unit, we expect there to be about eight cases, so a small number, but of course if the powers work well and we expand the unit, that will increase. As the hon. Member would expect, we have engaged heavily across Government on all these questions. The critical thing is that there is significant deterrence to having to go through a court process—in terms of the interest that is going to grow on the debt, and the fees that would be accompanied by the legal costs and other costs associated with that process. Our hope is that the majority of people will go through a voluntary process—that will be both easier and less expensive for them—and that these powers will be used primarily as a deterrent.
Question put and agreed to.
Clause 15 accordingly ordered to stand part of the Bill.
Clause 16 ordered to stand part of the Bill.
Clause 17
Direct deduction orders
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
Clause 18 stand part.
Clauses 20 and 21 stand part.
Georgia Gould
Clause 17 introduces direct deduction orders as a method to recover public funds lost to fraud and error from a liable person’s bank account. Direct deduction orders are a vital mechanism to recover funds from a liable person who can afford to repay their debt but refuses to do so. This debt recovery mechanism is not new to Government; the Bill seeks to bring powers that are used elsewhere into the PSFA, not to create brand-new powers for the PSFA. That provides assurance of their effective and proportionate use, and we are doing the same here. The introduction of direct deduction orders is essential to bolster the Government’s ability to recover public funds, ensuring that taxpayer money lost to fraud and error is reclaimed and redirected towards essential public services and the common good.
To safeguard the use of these powers, direct deduction orders will be used after an investigation by the Public Sector Fraud Authority into suspected fraud against a public authority. The decision to make a direct deduction order will be made by trained and authorised officers in the PSFA who will work to the standards of the Government counter-fraud profession. The investigation must determine, to the civil standard of proof, that money is owed to the public sector as a result of fraud or error. As I have said, we will seek voluntary engagement and repayment, and only after those efforts have been unsuccessful will direct deduction orders be used. As outlined in clauses 12 and 14, there are clear restrictions as to when these powers become available, ensuring that their use is not unfettered.
Mike Wood
Clause 17 establishes that when a payable amount is recoverable, the Minister can issue an order for direct deductions from a liable person’s bank account, either through regular deductions or a lump sum payment, as she said. Clause 18 further clarifies that those deductions can be taken from any account in which the liable person has a beneficial interest. That is extremely important, given the difficulty in establishing the different networks of bank accounts that may be held, particularly in cases of serious and organised fraud. We welcome the flexibility the clause introduces.
Although the provisions aim to improve efficiency in recovering public funds, there are still questions regarding fairness, proportionality and the safeguards that are in place, starting with the definition of beneficial interest in clause 18. Clause 18(1) allows the Minister to make an order on an account that is held by the liable person and contains an amount that the Minister considers the liable person has a beneficial interest in. What criteria or evidence does the Minister expect the PSFA to use in determining a person’s beneficial interest in an account, given the complex ownership and title structures that may be in place? On the flip side of that, how will the rights of third parties be protected, particularly if funds belong to someone other than the liable person that might be held in a shared account?
That brings us to the question of joint accounts. Clause 20 assumes that a joint account is split equally between account holders unless the Minister has reason to believe otherwise. What types of evidence would be accepted to demonstrate that the liable person’s beneficial interest is different from an equal split? The Minister referred to bank statements, but would those investigating also look at legal documents or perhaps third-party testimony? Would that be appropriate in some circumstances? Will additional checks be carried out to ensure that joint account holders are not unfairly penalised for debts that might not be theirs? It is not uncommon for people in marriages or long-term partnerships to have a domestic joint account. It might well be that one of the partners in the relationship is, in practical terms, paying more into an account, but also using the account more than the other partner, despite the two names being equally on the face of the account.
Clause 21, on the notice and the right to respond, sets out the process of notifying banks and liable persons before deductions are made, and includes provision allowing them to make representations within 28 days. The clause allows the Minister to notify the bank first before informing the liable person, to prevent account closure, asset withdrawal or other measures being taken to deprive the taxpayer of the recovery of sums that might rightfully be recoverable. Can the Minister point to a precedent for that approach in other areas of law? How does that align with best practices in financial enforcement?
Although clause 21 allows the liable person to make representations to the Minister, there is not an explicit provision for an independent appeal mechanism. Is there a reason why the Bill does not provide for such a process? Would the Government consider an independent review mechanism, beyond the systematic review that is in place for the Bill, to ensure that decisions are fair and transparent and do not disproportionately affect people in individual cases?
To go back to the potential risks of financial and domestic abuse that I touched on earlier, deducting money from joint accounts could create serious risks for individuals in financially abusive relationships. What safeguards will be put in place to prevent financial hardship, particularly for vulnerable individuals who might not actually be responsible for the debts that the PSFA seeks to recover? What specialist training will staff receive to identify and mitigate the risk of financial or domestic abuse? The effectiveness of the measures will depend on strong safeguards, clear guidance and robust oversight mechanisms to ensure fairness and proportionality. I would appreciate further clarification from the Minister on those points.
Steve Darling
I rise to speak about clause 20 in particular. Liberal Democrats are heartened by clause 18, which clearly says that if there is another account the money could be drawn from, that will be utilised. However, we are particularly concerned about coercive and controlling relationships.
In my 30 years serving the people of Torbay as a councillor, I found on a number of occasions that people who are happy to conduct fraud against other parties, whether the state or other organisations, are often very happy to financially abuse their partners as well. That leaves their partners in a very vulnerable situation. I found that often the individuals affected are very trusting people who have vulnerabilities elsewhere in their lives, which would be recognised by the Department for Work and Pensions if it were supporting them.
I really want to hear from the Minister how the DWP is going to support people and be alive to the risk. It is about making sure that there is a culture of knowledge of the issue among the investigators. Although it is essential that we get the money from fraud in, we do not want collateral damage on people who have been abused.
Rebecca Smith (South West Devon) (Con)
I have some queries about clause 17 and the provisions on recovery from bank accounts. My comments apply to clause 38 as well, but I will speak specifically to clause 17.
Earlier, the Minister mentioned that some of the powers for direct deductions and deductions from earnings are used more widely across the DWP, particularly in the CMS for recouping costs for parents. Have the Government thought more broadly than simply direct deductions and deductions from earnings? My understanding is that the CMS has quite strong powers beyond that and has used them in the past.
Given the nature of fraud against public authorities—these are ultimately quite serious offences—what more has been done to consider whether direct deductions and deductions from earnings are enough and will be all that is required? At some stage, do we need to think about putting in tougher and more stringent powers to claw back the money owed to the Government?
John Milne (Horsham) (LD)
As the Minister described, the powers in the Bill are already used by other parts of Government. Can she provide us with any evidence of their success? Are they doing the job they were made for? Have they led to a change in behaviour in the way potential fraudsters set up accounts or attempt to disguise beneficiary interests?
Georgia Gould
I really appreciate the focus on vulnerability and oversight, because with these powers comes a huge amount of responsibility. The questions that have been raised today are really important.
First, the joint account holder will be able to make their own representations for review. The starting point will be the equal split, as was set out, but they will be able to make representations and ask to have their rights reviewed as part of the investigative process.
On the wider point about vulnerability, which was well made, there is a huge amount of established practice in Government, and the PSFA will seek to learn from that. The Government debt management vulnerability toolkit will be utilised. All the authorised officers will have training in vulnerability and economic abuse. Vulnerability assessments will take place in every single instance of debt recovery and vulnerability will be kept under review. A range of training and safeguards is in place around our approach.
On clause 21, I reassure the shadow Minister that there is precedent in HMRC. There can be both an internal review and an appeal, which is set out in clauses 34 and 31.
A wider point was made about whether we have looked at different and wider powers. The thing to remember about the powers is that in the majority of cases, but not all cases, we expect them to be used to recover funds from organisations rather than individuals, which is why we have focused on the financial side of debt recovery and penalties. Other powers are used by other Departments. I said earlier that we want to continue to be able to use other legal procedures to pursue recovery, including liability orders, and the Bill will not stop us doing so. We have a range of options in front of us.
Rebecca Smith
I thank the Minister for that reassurance and for outlining that there are further abilities to recover funds. Particularly in recoveries from organisations, does that include the seizure of assets should that be necessary? A lot of organisations might be asset rich but cash poor. If we seek to retrieve money on behalf of the Government, is the ability to seize assets, if required, within the framework the Minister alluded to?
Georgia Gould
Among the powers in the Bill there is only the power to recover debt through the ways that I have set out.
Question put and agreed to.
Clause 17 accordingly ordered to stand part of the Bill.
Clause 18 ordered to stand part of the Bill.
Clause 19
Requirement for banks to provide information
Question proposed, That the clause stand part of the Bill.
Georgia Gould
The clause outlines the information notices that can be given to a bank, how the bank must comply, the information it must provide and how the information can be used.
To determine whether to make a direct deduction order, an account information notice or a general information notice may be given. This is crucial in ensuring that sufficient financial information is gathered to facilitate informed debt recovery decisions, thereby enabling the effective recovery of public funds. The information provided by the banks is necessary and proportionate to ensure that the liable person’s financial situation is considered before a direct deduction order is made. This approach is already used by HMRC for its comparable direct recovery of debt, and it is also requested by the DWP in part 2 of the Bill.
The information gathered will protect vulnerable people, prevent hardship and safeguard non-liable joint account holders, while acknowledging the vital need to recover public funds lost to fraud and error. Banks must comply with a notice under the clause, and may be liable to a penalty for failure to comply without a reasonable excuse—this will ensure that the measures are adhered to. Furthermore, banks are prohibited from notifying account holders that they have received a notice under clause 19, to avoid tipping off debtors and thereby prevent money from being moved from the account. Overall, the clause is necessary in furthering the effective recovery of public funds. Having outlined the key provisions in clause 19, I commend it to the Committee.
Mike Wood
Clause 19 grants the Minister significant powers to obtain financial information from banks before making a direct deduction order, including the ability to request three months of bank statements, or perhaps statements covering a longer period where specified. The power to issue an account information notice requires banks to provide statements to determine what deduction should be made, and the power to issue a general information notice requires banks to disclose an individual’s account details, balances and correspondence addresses.
Clearly, in many investigations there will be good reason why some or all of that information is necessary, appropriate and justified. Of course, some of the information will be extremely sensitive, so we need necessary safeguards and appropriate oversight to ensure that sensitive information is requested and subsequently shared only where it is directly necessary to the investigation, and where the Minister or PSFA has justifiable grounds to think either that an error is costing the public sector significant amounts of money or that there has been a case of deliberate fraud. As I said about the previous grouping, a prohibition on banks informing the liable person that an information notice has been issued is a sensible measure to prevent that person from taking action to frustrate attempts to recover money that ought to be recovered—they could, for example, empty their account before deductions could take place. In principle, we support powers designed to ensure effective debt recovery under the right circumstances and when used in the right way, but there are several concerns regarding proportionality and oversight when it comes to protecting legitimate privacy rights.
First, on the unlimited timeframe for bank statements, clause 19 states that the Minister must obtain at least three months’ worth of statements, but can request a longer period if specified in the notice. What criteria will determine whether more than three months of statements is needed? Is there a reason why no upper limit is specified within the clause on how far back those requests can go? Clearly, the further back that requests are made for a bank statement, the greater the risk that they could lead to overly intrusive requests that may not be entirely necessary for the debt recovery.
On the broad information-gathering powers, the general information notice allows the Minister to demand a full list of all accounts held by the liable person, their details and their addresses. Presumably, that is for the specific financial institution that the notice refers to. Are there any safeguards to prevent excessive or disproportionate use of those notices? Must there be a reasonable suspicion or at least a threshold to be met before those powers can be exercised? The Bill states that the Minister can only request information to exercise their core functions, but that is obviously a very broad measure so could be interpreted very broadly.
Banks would be prohibited from informing the liable person that an information notice had been issued. Although that prevents individuals from evading deductions, it means that they may be unaware of a Government investigation into their finances even after the event. Are there any circumstances in which the liable person might be informed that their financial data has been accessed—perhaps after an investigation has been closed? Does the Minister envisage any independent oversight to ensure that those powers are used proportionately?
On the burden on banks and financial institutions, on which my hon. Friend the Member for South West Devon and I have tabled amendments to be debated later in the proceedings, these powers will require banks to process and respond to Government information notices, likely adding costs and administrative burdens to those institutions. Have the Government consulted with financial institutions to assess how proportionate the kinds of requests envisaged under the Bill are, the ease or the difficulty of compliance, and the estimated cost to banks and the financial sector? During evidence last week, some financial institutions did not seem to have any idea of what scale of burden that would be putting on their members. Again, a large part of this came back to the lack of visibility of draft codes of practice.
On privacy and data protection concerns, although the Bill states that the Minister can only request relevant information, that can be interpreted broadly. What legal protections exist to ensure that financial data is accessed and used appropriately for the very narrow purposes for which these clauses are intended? Will there be an independent review mechanism to assess whether those powers are used lawfully and proportionately?
Finally, given the wide-ranging implication of the powers, further clarity and safeguards are needed to balance effective debt recovery against individual privacy rights. I would welcome further details from the Minister on those critical issues, so that we can be comfortable going forward that the wide-ranging powers that we would be granting to the Minister and the PSFA cannot be misused and that individual privacy rights will be protected and respected.
Steve Darling
I ask the Minister to reflect on how speedily the Bill is going through Parliament. As we heard from the hon. Member for Kingswinford and South Staffordshire, financial institutions are not clear about the impact on or the cost to them. When we legislate in haste, challenges will often come out of the woodwork in the longer term. In this particular area, again, the issue is about the safeguards. We assume that we are dealing with reasonable people, but we do not have to look far in international news to see what can go wrong when unreasonable people gain power.
Where are the safeguards? When holding a Minister to account, it is often assumed that the Minister will be a reasonable person. Sadly, however, in the future the Minister may not be a reasonable person, so where are the safeguards for individuals? Also, as alluded to earlier in the debate, it would be helpful to have some assurance on the banks and the impact on them.
Georgia Gould
Let me go through those points in turn. The first question was about why someone might need information before three months. There are two critical reasons why: one is to ascertain potential vulnerability and affordability plans—we have talked about safeguarding joint account holders so as to have more information—and the other is to prevent people from evading paying: if more information were needed to ensure that the assets had not been moved. Throughout, we have tried to balance ensuring fairness for the taxpayer and protecting vulnerability. I hope it will give some reassurance that such powers are used effectively elsewhere in Government. We have learned from best practice.
I talked through the process of the first notice, and that will be where the individual is informed that that information has been requested. As we have discussed, a number of safeguards are built into the process, and the intention when recovering debt will be to work with the individual and to make it collaborative. If people refuse to pay, only at that point would we apply to the courts or a tribunal, where safeguards are of course in place.
To the wider question of what safeguards hold the system to account, as I have outlined and as we will discuss in more detail later, a team answerable to an independent chair will oversee every part of the process, including the ability to look at live cases and at the patterns, to ensure proportionate use of the powers. That individual will report to Parliament. Separately, a fully independent body will review the full use of the powers. We expect that to be His Majesty’s Inspectorate of Constabulary and Fire and Rescue Services. The Bill also includes a provision to make the PSFA a statutory body, and so fully independent of the Minister. While it remains in this smaller phase, where we are testing the powers, the independent safeguards are built in.
On the point about the consultation with the finance bodies, I hope the Committee heard in the evidence that UK Finance was clear that we have been having a constructive dialogue on all of the issues. The PSFA has published an impact assessment, which suggests that, in the first instance, banks will need to look at a very small number of cases. We have committed to testing and learning alongside the process as the PSFA grows. There will be established practice for working closely with the banks. We expect the burden on banks for the application of the PSFA powers to be limited. I hope that gives some reassurance on oversight.
The Chair
With this it will be convenient to discuss clause stand part and clause 23 stand part.
Mike Wood
Clause 22 outlines how much can be directly deducted from a liable person’s bank account, while clause 23 specifies the information that must be included in direct deduction orders. These provisions are central to the enforcement mechanism and yet there are many questions that remain about their practical implementation and fairness.
As we have said many times in Committee, it is very difficult to assess how the system will work without seeing a draft code of practice. As Anna Hall from the Money and Pensions Service said when giving evidence last Tuesday,
“the code of conduct will be the critical thing. One of the things is that if frontline staff are not picking up vulnerabilities, or they are not trained in how to sort out affordability, in empathic listening or in all the protocols about how to have different types of conversations with people in different types of vulnerable situations—if those things are not in place—some of the processes in the Bill will not be as effective. It comes down to the training for frontline staff, and the capacity and processes to then follow up on what has actually been disclosed, that will enable those repayment plans to be put in place before those later processes. If those are not in place, that could cause some real issues. How successful this Bill is will come down to the code of conduct, as many have said.”––[Official Report, Public Authorities (Fraud, Error and Recovery) Public Bill Committee, 25 February 2025; c. 30, Q49.]
The Minister kindly promised during earlier sessions that:
“As for the development of the codes of practice, as I hope the Committee will see today, I will refer to the measures that are to be put in the code of practice as we go through the clauses, so that we can have some discussion about that.”––[Official Report, Public Authorities (Fraud, Error and Recovery) Public Bill Committee, 27 February 2025; c. 92.]
This is another occasion where it would be helpful, as the Minister suggested, to know a bit more about the code of practice, to enable us to scrutinise the provisions better. As witnesses have said, the code of practice is key to how effective the provisions will be. The effectiveness of the Bill will depend on matters such as the training for frontline staff on assessing affordability and vulnerabilities, the processes to evaluate hardship and to create fair payment plans, and the protocols to identify and support people in vulnerable situations.
Can the Minister provide further information about the code of practice, when it will be available for scrutiny and how it will relate to those elements of these clauses? How will the direct deduction system work in practice? As I say, this is a question about staff training and decision making; it will be an operational matter rather than something that can necessarily be directed from Westminster or Whitehall, so how will staff determine a suitable recovery amount and timeline? What principles will guide repayment plans, and how will assessments be made to ensure that affordability and prevent hardship?
Without knowing those matters, it is difficult to judge the appropriateness of some parts of these clauses, because there obviously will be some vulnerable individuals who might be subject to some of the measures in these clauses. What safeguards will be in place for those who require additional support? Will special provisions exist for individuals facing mental health issues, financial abuse or crisis situations?
I turn to the limits on deduction amounts. This is an area where we think the Government are possibly not going far enough: they are setting a maximum deduction limit even when sufficient funds exist and even when the Minister is satisfied that there has been deliberate fraud and an intention to deprive the taxpayer of money that should rightfully be being spent on public purposes.
Obviously, there are some safeguards in the clauses relating to hardship and essential living costs. The legislation states that deductions must not
“cause…hardship in meeting essential living expenses,”
but just how is that hardship to be assessed? Would someone who fraudulently obtained money be allowed to retain it if they successfully argued that they would suffer hardship from repaying it, even if they were never entitled to the money in the first place? And where does that line fall? Presumably, we would not expect them to be able to retain money to allow them to lead a certain quality of life that they may be used to, but that is obviously very different to being able to pay essential bills.
Under the Bill, in cases of fraud, only 40% of credited amounts can be deducted in the relevant period. We are not sure why that cap is in place when the individual was never entitled to the money. If a person has sufficient funds and there has been a conscious—perhaps even organised—attempt to defraud the public sector, why limit recovery rather than allowing full repayment?
That brings me to amendment 19, which stands in my name and that of my hon. Friend the Member for South West Devon. It proposes removing the 40% cap to ensure full recovery under this legislation where possible and subject, obviously, to the safeguards to which I have referred—the hardship test and the independent oversight that is contained within the clauses.
Mrs Lewell-Buck, if you had defrauded the taxpayer out of £100,000—I am not for a moment suggesting that you would—and £100,000 happened to be visible within your bank account, and the Minister was satisfied that that was the result of a conscious course of action on your part to defraud the taxpayer and that there was no reason to imagine that losing it was going to cause you obvious hardship, why should you be allowed to keep £60,000 of that £100,000 in your bank account, even though the money was simply not yours? In that hypothetical situation—I ought to repeat that—it would be stolen money. It does not seem right that the legislation appears to protect 60% of defrauded money and prevents recovery through these mechanisms, so I intend to push amendment 19 to a Division. Who is subject to the safeguards in the clause? If the Government are confident that those safeguards are robust enough to apply to the first 40%, it seems that they ought to be robust enough to apply to the remaining 60% as well.
Returning to clause 22, what happens if too much is deducted? The Bill states that the Minister must not deduct more than the payable amount, which is a sensible and logical bar to set. However, what mechanisms exist to correct over-deductions? What recourse does a liable person have if an error is made and they suffer loss as a result of an over-deduction?
Neil Coyle (Bermondsey and Old Southwark) (Lab)
Is the shadow Minister suggesting a level of deductions that is acceptable? The amount that the Department for Work and Pensions can claim back has fluctuated in recent years. Are the Opposition proposing a level at which that threshold should be set?
Neil Coyle
I am not talking about the amount for those who have committed fraud but for the second group that the shadow Minister mentioned, where there perhaps has been a mistake.
Mike Wood
In the case of non-fraudulent claims, where the Minister is not satisfied that there has been fraud on the part of the liable person, I would be inclined to go with the Government’s figure of 20%. That is reasonable in the case of errors, and it obviously allows for longer-term recovery where a genuine mistake has been made. Where there is deemed to have been fraudulent activity, it does not make sense to give those responsible the protection of protecting 60% of the money that they have stolen.
Neil Coyle
Is the shadow Minister’s other concern, with those who have committed fraud, that he thinks the payment should be faster? The Bill allows for 100% of this falsely claimed sum to be recouped, but he seems to be suggesting that he would like to see that done faster. Is that the nature of the amendment?
Mike Wood
Obviously, the Bill allows for sums to be recouped through regular earnings. Where money is in a bank account, we have established that the money is there from the information notices and other measures in the Bill. If the full amount that has been defrauded is available within the account, it seems to make little sense not to be able recover that sum from the account, rather than relying on a deduction of earnings order.
Clause 23(5) requires banks to comply with direct deduction orders. Have the financial institutions been consulted on those obligations and are they content with them? As was said earlier, the evidence that we heard last Tuesday suggested that many financial institutions did not seem to have a grasp of what those obligations and burdens might look like, as well as the costs that would arise.
To conclude, the effectiveness of these provisions will depend heavily on the codes of practice on staff training and on fair procedures. Further clarification is needed to ensure deductions are proportionate, transparent and do not cause undue hardship, particularly in cases of fraud and financial vulnerability. But where there has been demonstrable fraud, the Opposition see no reason to protect 60% of credit in a bank account where it may be linked to conscious efforts to defraud the taxpayer. I would welcome the Minister’s response to those concerns.
Steve Darling
The Liberal Democrats support this Conservative amendment. I will not go over the arguments again, as they have been well put. Some clauses talk about safeguards. It is about the culture of the organisation, making sure that individuals have professional curiosity and how to foster that within the organisation. Professional curiosity can bear significant fruit for a number of Government organisations when they conduct activities, but broadly we are supportive.
Siân Berry (Brighton Pavilion) (Green)
It is a pleasure to serve under you today, Mrs Lewell-Buck. I do not support the Conservative amendment. A lot of the discussion in Committee has been about reducing the risk of harm to potentially vulnerable people and people caught up in these frauds, who might not deserve to be punished in any way. I would not support taking out a measure that is there presumably to reduce the consequences of making an error. Therefore, I will not support the amendment.
Georgia Gould
I welcome the opportunity to respond to the amendment and to clarify an error that I made in a previous discussion that might have contributed to some confusion. When I talked about the recovery of debt and a limit to the amount that will be recovered, I mentioned up to 40% of assets when I meant to say credited amounts. To be clear, in the instance that the shadow Minister mentioned—say the Member for Kingswinford and South Staffordshire defrauded the Government, they had £200,000 in their account and it was a lump sum, the powers would enable the PSFA to recover that money, with the safeguards of not leaving that person in financial destitution. The 40% is related to ongoing repayments and the speed of repayment. I hope that that gives some reassurance to the hon. Member.
To the points that Opposition Members have made about vulnerability and training, the PSFA authorised officers will be highly trained. They are subject to professional training and a code of ethics within that. That includes the kind of professional curiosity that the hon. Member for Torbay talked about. On debt recovery, they will work to establish debt practice, including the debt management vulnerability toolkit, which is publicly available. I would be pleased to send him those documents so he can understand the vulnerability assessments that will be made and scrutinise them.
To go through the detail of the clauses, specifically for a regular direct deduction order, the total deductions in a 28-day period must not exceed either 40% or 20% of the amount credited to the account in the relevant period: for fraud, 40% is the maximum; for error, the maximum is 20%. Throughout the Bill, we have sought to bring powers that are used elsewhere into the PSFA, not to create brand new powers for the PSFA. This provides assurance of their effective and proportionate use, and we are doing the same here. The 40% maximum limit is in line with existing legislation, such as the DWP’s existing direct earnings attachment powers and the Child Maintenance Service deduction from earnings order powers.
Mike Wood
I thank the Minister for giving us some clarification on that, but the direct deduction is different from an earning attachment where there is likely to be another similar amount coming in the following month. The Minister suggested I might have £200,000 in my account, which I think would raise a few eyebrows all around. But if all £200,000 had been the result of fraud from the public sector, and I chose to put that regular direct deduction order in place, my understanding of clause 22(3) is that in the first month the maximum that could be deducted would be 40% of £200,000—which is £80,000.
Georgia Gould
First, I want to make absolutely clear that I was not accusing the hon. Member of any fraud, but just using a hypothetical. In that instance, the PSFA would use the lump sum direct deduction orders, so they would be able to take the full amount. They would not need to use the direct earnings attachment. It would be a lump sum direct deduction order that would recover that money. As I said, there are no limits to that, except that it does not cause hardship in meeting essential living expenses. I hope that provides some reassurance.
The 40% maximum limit is in line with existing legislation. The amendment seeks to remove the 40% cap for fraud, allowing a higher percentage of regular deductions to be made. To be absolutely clear, for lump sum direct deduction orders, there is no maximum limit on the total amount of deductions. However, the lump sum deduction must still adhere to the core principles, in meeting essential living expenses and be otherwise fair. That ensures that where a higher proportion of the payable amount is present in the account, we can recover the debt more efficiently while maintaining those key safeguards.
We are also able to issue a lump sum direct deduction order and then establish a regular direct deduction order. That allows us to take an initial higher amount of deduction, with regular payments thereafter where appropriate. This is a better route than allowing for a higher level of deductions. It builds on established practice, is proportionate while still being impactful, and it limits the disincentive to earn that an unlimited regular deduction would create. A too-high regular deduction would disincentivise earnings so strongly that it would result in slower, not faster, recovery of funds for our public services.
I turn to clause 22, which sets out the amount of deductions that there may be under an order. We have ensured that the amount of debt we collect at any given time is fair. That is why we established maximum limits based on whether debt was accrued due to fraud or error. We have discussed the safeguards and precedent at length, and the powers here build on precedent across Government. A key consideration throughout the creation of the debt measures was to robustly prevent hardship, learning from best practice. The challenge was to balance that with the need to send a strong deterrent message to those who have the means to pay their fraud and error-related debt to Government, but refuse to do so.
Clause 22 caters for that by ensuring that the terms of the order will not cause the liable person, any other account holder, or a person living with or financially dependent on the liable person or any other account holder, hardship in meeting essential living expenses. To ensure we include other considerations outside of this list, the terms of the order are also required to be otherwise fair in all circumstances.
Clause 23 provides the contents and effect of direct deduction orders. Regular and lump sum direct deduction orders must specify the amount, or a method for calculating the amounts, to be deducted and when. A regular deduction may specify different amounts or different methods to be deducted at different times. For example, the first deducted amount may be higher than the following payments to recover the debt in the most efficient way possible. Deductions may not be made until 28 days after an order has been made. That provides a safeguard for the liable person, allowing them the requisite time and opportunity to request a review under clause 45. Banks must comply with the direct deduction order, whether regular or lump sum, to ensure adherence to these measures. A penalty may be imposed for failure to comply under clause 53.
Clauses 22 and 23 send a strong message to those with fraud and error-related debt to the Government, while preventing hardship and protecting those who are vulnerable. They play an essential role in the operation of a direct deduction order and align with the core principle of seeking the effective recovery of public funds.
I have set out the powers that are available under the Bill, but as I said earlier, they do not prevent the Government also being able to use powers that are already available, such as applying to the courts to seize assets. Having outlined the key provisions in clause 22 and 23, I commend both to the Committee.
Mike Wood
Given the Minister’s reassurances, I will not press amendment 19 to a Division now, but we may wish to come back to the matter on Report. I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clauses 22 and 23 ordered to stand part of the Bill.
Clause 24
Bank’s administrative costs
Question proposed, That the clause stand part of the Bill.
The Chair
With this it will be convenient to discuss the following:
New clause 6—Report on cost implications for banks—
“The Secretary of State must, within three months of the passing of this Act, publish a report on the expected cost implications of the provisions of this Act for banks.”
Amendment 23, in clause 103, page 63, line 35, at end insert—
“(3A) Before bringing into force any of the provisions of Part 1 of this Act, the Secretary of State must consult with banks as to the costs which will be incurred by banks upon application of the provisions of Part 1.
(3B) Where consultation finds that the expected costs to banks are at a disproportionate level, the Secretary of State may not bring into force the provisions which are expected to result in such disproportionate costs.”
Georgia Gould
Clause 24 enables a bank to deduct administrative costs that it has reasonably incurred when complying with a direct deduction order from the liable person’s account. This provision is essential to ensure that banks are adequately compensated for the administrative efforts required to comply with the orders, thereby facilitating the efficient operation of debt recovery processes while protecting account holders from undue financial strain. A direct deduction order will then specify how the bank can deduct its administrative costs while complying with the maximum amount of total deductions as specified in the clause 22.
Clause 37 contains a power to make further provision through regulations as to the administrative charges which can be imposed by the banks. That power will be used to introduce a cap on the charges which can be imposed under this clause and which can be adjusted in line with inflation and to ensure that the charges remain reasonable at all times. The amount may be deducted by the bank immediately prior to the direct deduction order. To safeguard against that causing unintended hardship, the question of deducting the bank’s administrative costs for the liable person must be taken into account when complying with the hardship considerations outlined in clause 22. That will ensure that the direct deduction order and deduction of the bank’s administrative costs do not cause the liable person, other account holders, those living with the liable person or joint account holder or those financially dependent on the liable person or joint account holder hardship in meeting essential living expenses and that the deductions are otherwise fair in all circumstances.
Regarding the burdens on the financial services sector, the Government are extremely mindful of the burdens that the Bill places on industry, including financial institutions. We want to ensure that banks are not subjected to disproportionate burdens or costs in complying with these measures. As I have outlined, that is why we met with key representatives of the finance industry, including UK Finance, individual banks, building societies and the Financial Conduct Authority, to ensure that there is close and sustained engagement on this Bill. We heard directly from UK Finance in evidence last Tuesday. The finance sector has supported the Bill’s objectives and there are constructive conversations already taking place. The direct deduction order powers in this Bill align with those existing powers and we will continue working with the DWP to align direct deduction order processes across both Departments where possible to simplify implementation.
Mike Wood
As the Minister said, the clause allows for deductions from a liable person’s account to include reasonable costs incurred by the bank in processing the deduction order. While the clause will ensure that banks can recoup legitimate administrative expenses, several important questions arise about fairness, oversight and overall financial impact.
Steve Darling
I echo many of the concerns raised by the shadow Minister. There are serious issues with giving a blank cheque to banks to undertake certain activities. How are they planning to calculate what their cost is? Is it purely the direct cost of that activity, or are they able to ladle into that some of their central costs? Clearly, if they did not exist as a bank, they would not be able to undertake these activities. There is uncertainty, and we wish to see fairness and transparency. Some feedback from the Minister on this matter would be extremely welcome, because although it is fair that people pay for the activity to be undertaken by banks, so that the burden does not fall on either the banks or the taxpayer, it is important that it is equitable. I look forward to the Minister’s response.
Georgia Gould
I referred in my opening remarks to the positive and ongoing conversations that we are having with banks and the UK finance industry, and that was reflected in the evidence we heard. A UK Finance representative said that a number of conversations with industry have taken place since the measures were announced, and referred to “constructive conversations”.
Concerns were raised about safeguards for the charges that banks could put in place under the PSFA measures, and I have already outlined some of the safeguards in place. The deduction of a bank’s administrative costs should not cause the liable person, other account holders, those living with the liable person or joint account holder, or those financially dependent on the liable person or joint account holder hardship in meeting essential living expenses, and they should be fair.
There are further protections in the Bill. Clause 37 contains the powers to make further provisions through regulations on the administrative charges that can be imposed by the bank. The powers will be used to introduce a cap on the charges that can be imposed under the clause and adjusted in line with inflation. To give further reassurance to the Committee, this is in line with the powers that HMRC has through the Enforcement by Deduction from Accounts (Imposition of Charges by Deposit-takers) Regulations 2016. For HMRC, the regulations specify that the amount should be
“the lesser of…the amount of those administrative costs reasonably incurred by the”
bank “and £55.” So there is precedent, and the necessary regulations will be made in due course.
In my view, new clause 6 is not required. We have already published the Bill’s impact assessment, which sets out the minimal expected cost to businesses of its measures, where it has been possible to do so, including to banks. The impact assessment has been green-rated by the Regulatory Policy Committee. DWP has also committed to providing estimates in a subsequent impact assessment of the business costs for DWP’s eligibility verification measure, within three months of Royal Assent. So DWP has already come forward to commit to bringing forward that information as part of the package. I am confident that that will provide the necessary transparency that the shadow Minister seeks, and I hope that our commitment again today to provide those costs reassures hon. Members.
Equally, we believe that the purpose of amendment 23 is already provided for through the regulation-making powers under clause 37. As I stated, we have consulted and will continue to consult the banks to implement the measures in part 1 of the Bill, as set out in the published impact assessment. In part 1, the costs to banks are expected to be minimal and offset by the ability of banks to recover administrative costs from the liable person.
Clause 24 enables the banks to recover administrative costs from the liable person, and clause 37 provides for regulations to be made in relation to the costs that a bank may recover by virtue of clause 24. We intend the regulations to be reasonable for those paying and for the banks. Before introducing such regulations, a consultation must occur with those representing the interests of banks. We are committed to continuing engagement and consultation with the financial services sector through the passage of the Bill and its implementation —indeed, that has been ongoing since evidence was given last week.
It is important to put the cost to banks in the context of the amount that will be recovered under the Bill, which we estimate to be £940 million—money that is vital to delivering public services. It is right that every part of the system plays its part in recovering money that was lost to fraud. Having outlined the key provisions in the clause, I urge the Committee to agree that it should stand part of the Bill.
I have just received a message: I thought I said that DWP would produce an impact assessment in 12 months, but I said three months. I assure everyone that it is 12 months.
Question put and agreed to.
Clause 24 accordingly ordered to stand part of the Bill.
Clause 25
Insufficient funds
Question proposed, That the clause stand part of the Bill.
Georgia Gould
The clause sets out the action to be taken if the amount in the account is lower than the amount specified in the direct deduction order. Should that situation arise in relation to a lump sum direct deduction order, no deduction is to be made by the bank, and the bank must notify us as soon as possible. If it occurs in relation to a regular deduction order, the order is to be read as requiring the deduction to be made on the same day the following week. If the amount in the account still remains lower, no deduction is to be made and the bank must notify us as soon as possible. That approach ensures that individuals are not unduly penalised or driven into financial hardship because of insufficient funds, while maintaining the integrity of the debt recovery process through prompt communication and reassessment. Having outlined the key provisions of the clause, I commend it to the Committee.
Mike Wood
The clause outlines the procedure when a bank account does not contain sufficient funds to fulfil a direct deduction order. The key provisions are as follows. For lump sum deduction, if the full amount is not available, no deduction is made and the Minister is notified. For regular deductions, if the necessary funds are not available, an attempt is to be made again on the same day the following week. If funds remain insufficient, no deduction is made and the Minister is notified.
I have some key questions and concerns as to what happens next. Once the Minister is notified, what are the next steps? Does the notification trigger further action to recover the money through other means? Is there a set timeframe in which the Minister must decide on further steps? Does the Minister have discretion to determine the best course of action, or are there prescribed steps that must follow? If funds are unavailable in the specified account, is there a process to check whether the liable person has other accounts in their name with other financial institutions that may have sufficient funds? Would the Minister have the power to issue a further general information notice to a bank in order to identify other accounts that could be used for recovery?
Georgia Gould
I am grateful for the shadow Minister’s questions. This clause and his questions really highlight the balance between safeguarding vulnerability—ensuring that people are not left without money to be able to support themselves and dependants—and recovering all the money owed to the Government.
Hopefully, the shadow Minister will be reassured that alternative recovery methods will be available, including using other powers in the Bill to gather information on, or recover money from, other accounts held by that liable person. If an individual continues to try to frustrate the process, as the shadow Minister has described, there are civil penalties through deduction orders of £300. If all the powers in the Bill are frustrated, the authorised officers will be able to apply to the courts to seize assets and to use other powers available. There are a number of options to ensure the full recovery of defrauded money to the state.
Question put and agreed to.
Clause 25 accordingly ordered to stand part of the Bill.
Clause 26
Restrictions on accounts: banks
Question proposed, That the clause stand part of the Bill.
Georgia Gould
Direct deduction orders will be an effective tool in recovering money owed to the public sector. However, it is important that we include measures in the Bill to make clear the obligations of banks and account holders with regard to the orders.
Clause 26 introduces restrictions on accounts from the perspective of banks. The bank must ensure that the account is not closed at the request of the account holder. If the notices relates to a lump sum direct deduction order, the bank must also secure that no transactions occur that would reduce the balance below the amount specified on the order, or the bank may transfer the specified amount, or the amount in the account if it is lower, into a hold account created by the bank to protect it. The bank must ensure that no transaction occurs that would result in the hold account’s balance falling below the amount transferred into it. When a bank transfers an amount into a hold account, it must ensure that in doing so, it does not cause any disadvantage to the liable person or any account holder. These provisions are essential and are a key safeguard to ensure that funds required for recovery are preserved while also protecting account holders from any disadvantage, thereby maintaining trust and fairness in the enforcement process.
Clause 27 imposes restrictions on account holders to prevent them from taking any action that may frustrate the effect of the first notice or direct deduction order, which the shadow Minister raised concerns about. To clarify, frustrating the effect of the first order in this context means frustrating the effect of the proposed direct deduction order, the terms of which are set out in the first notice. Frustrating the effect of the first notice or the final direct deduction order might include a liable person creating a new bank account in order to redirect the payment of their salary, or the liable person falsifying the extent of their protected essential living expenses.
These restrictions are vital to ensure that funds necessary for debt recovery are not deliberately concealed or moved, thereby upholding the fairness and integrity of the public fund recovery system. They are also balanced within the wider direct deduction order measure, which includes review and appeal rights that are also intended to be subject to independent oversight, to be discussed later. Should a person frustrate the effect of the first order or direct deduction notice, a trained authorised officer may decide to impose a penalty under clause 53.
Mike Wood
Clause 26 places significant responsibilities on banks once a direct deduction order has been issued. The bank must ensure that the account is not closed while a deduction order is active, prevent transactions that would reduce the balance below the required deduction amount—for example, the transfer of funds—and ensure that these actions do not cause disadvantage to the liable person.
I have a few questions about those responsibilities. How are banks expected to assess disadvantage or hardship, based on what is likely to be very limited information available to them about their account holders? What guidance or criteria will be provided to banks to determine what constitutes a disadvantage to the liable person? How can banks assess the potential immediate impact of blocking transactions, including preventing spending on essentials—for example, food or utility bills—and any consequences that might arise from that? How will they consider longer-term financial obligations, such as rent or mortgage payments, disruption to which could cause significant hardship?
The lack of a code of practice makes it difficult to properly scrutinise these measures. The code of practice is expected to provide crucial details on how banks should balance enforcement with protecting individuals from undue harm, but we will have to wait until after we have made decisions in Committee and in the Bill’s remaining stages to see it. It would be helpful if the Minister could clarify how these concerns will be addressed in the code of practice and provide as much specificity as possible.
Clause 27 states that account holders must not take actions that frustrate the direct deduction process, such as closing the account, moving funds elsewhere to evade the deduction or engaging in other actions that undermine the effectiveness of the recovery process. The matter of penalties for non-compliance needs to be looked at carefully. What penalties will be imposed if an account holder deliberately frustrates the deduction order? Would non-compliance be treated as a civil offence, or could it lead to criminal penalties in cases of deliberate obstruction? If the financial institution failed to prevent it, would that be a civil offence, or would it be seen as a regulatory issue?
Is there an appeal mechanism if an account holder can prove that a transaction was necessary and not an attempt to evade the deduction? For example, what would happen if someone urgently needed to pay rent or buy medicine and did not realise it would interfere with the deduction order? Would there be any flexibility in cases of financial difficulty, and how would that be assessed?
Given the significant responsibilities placed on banks and the potential impact on individuals, further clarity is needed on how banks will be guided in assessing disadvantage and hardship, how the code of practice will address these concerns and ensure practical implementation, what penalties will apply if an account holder frustrates the deduction process or if a financial institution fails to prevent such frustration, and what appeals or exceptions exist for necessary transactions that unintentionally interfere with the deduction order. Those clarifications are essential for ensuring that the system is both effective and fair.
Georgia Gould
It is important to set out again that these powers will be used in the last instance and, in many cases we hope they will be a deterrent. In the majority of cases, we expect people to engage with the authorised officers and come to a voluntary agreement. If people do not agree, the powers will be used only after an application to a court to determine the ability to recover that debt. In the first instance, we expect these powers to be used in a very limited fashion; the impact assessment talks about fewer than 10 cases a year. There is ample time to work through with banks how these powers are used and ensure that it is proportionate.
The shadow Minister raised concerns that the powers are too harsh in some cases and that they will leave people vulnerable in others, which shows the balance involved. The measures have been carefully thought through, and they include safeguards for vulnerability but also the ability to step in if people are deliberately frustrating the process.
We will issue guidance to banks on how the three months of bank statements will be determined, and authorised officers will work with banks to ensure that this works effectively. The shadow Minister asked about the penalty. It will be a £300 fixed penalty notice for failing to comply. As with every part of this, people will be able to request a review and, ultimately, to appeal.
Question put and agreed to.
Clause 26 accordingly ordered to stand part of the Bill.
Clause 27 ordered to stand part of the Bill.
Ordered, That further consideration be now adjourned. —(Gerald Jones.)