Public Authorities (Fraud, Error and Recovery) Bill

Debate between Baroness Anderson of Stoke-on-Trent and Baroness Kramer

Report stage
Wednesday 15th October 2025 Lords Chamber

[Baroness in Waiting/Government Whip (Baroness Anderson of Stoke-on-Trent) (Lab)]

My Lords, so we begin Report. I thank all noble Lords for their genuinely constructive engagement on this important Bill, as we seriously engage in efforts to protect taxpayers’ money—something I know every Member of your Lordships’ House cares vehemently about. I especially thank the Opposition Front Benches, who have given much of their time to make sure this works. I hope that they will see, through the responses from the Government today, that we have tried to listen and make as many amendments as possible to make sure this Bill is effective and will work in practice.

Once again, I warmly welcome the amendments tabled by the noble Baroness, Lady Kramer, on the important issue of whistleblowing, as I did in Committee. The noble Baroness is committed and diligent in this area. As ever, she has proved to be tenacious and determined, but with due cause, ensuring that we can prevent some of the appalling scandals she named.

It is clear that protections for whistleblowing are a key aspect of counterfraud investigations. A 2023 National Audit Office report into whistleblowing showed that a total of 41 organisations employing civil servants recorded and reported 939 concerns over a three-year period. Fraud was consistently the most common category, representing 39.9% of all concerns across the three years. It is only right that the PSFA closely considers its role in this landscape. As such, I am pleased to have an opportunity to place on record our efforts since your Lordships last debated the issue. We are listening to your Lordships’ House. We are doing everything we can to ensure that both this legislation and the work of the PSFA are as effective and impactful as they can be.

Officials across government have come together to understand what can be done in the public sector fraud whistleblowing space. In particular, the PSFA Bill team has worked with the other Bill teams, where this important issue has also been raised recently in your Lordships’ House, to ensure that departments work in partnership to deliver a coherent response.

As a result, I am pleased to give the noble Baroness, Lady Kramer, a series of commitments this Government can make. First, to ensure that this important issue continues to be taken forward effectively, officials will continue co-ordinating across the whistleblowing landscape to identify areas where the PSFA can add value, such as joint guidance documents on public sector fraud. The PSFA will also seek to work closely with officials in the SFO and HMRC. HMRC has deployed a whistleblower incentivisation scheme and the SFO has developed proposals for a similar scheme. The PSFA and the SFO have already agreed to identify areas where they can support each other’s work on whistle- blowing. Once Jonathan Fisher’s review is published, the PSFA will work with other government departments to consider, and where possible adopt, his whistleblower recommendations.

I am also pleased to announce that as soon as is practicable—likely to be within 12 months of the powers being first used—the Government will ask the independent reviewer, who will be appointed under Clause 65 of this Bill, to conduct a review of the PSFA’s use of whistleblowing in cases of public sector fraud.

The PSFA will also endeavour to publish updates on whistleblowing in public sector fraud in its annual reports, where appropriate. Those reports will be used as an opportunity to communicate routes available for whistleblowers on public sector fraud. Also, once this Bill becomes law, PSFA will seek a place on the DBT prescribed persons list under the Public Interest Disclosure Act 1998.

I look forward to future engagement on this issue. Given the commitments I have outlined and the necessity of maintaining the focus of this legislation, I hope that the noble Baroness, Lady Kramer, will not press her amendments.

[Baroness Kramer (LD)]

My Lords, the Minister has described some real momentum. As I say, we would always want more; when we put down amendments, we have an ideal target in mind, but this is an area where progress matters. I thank the Minister and I will indeed withdraw my amendment.

Public Authorities (Fraud, Error and Recovery) Bill

Debate between Baroness Anderson of Stoke-on-Trent and Baroness Kramer

Committee stage
Wednesday 4th June 2025 Grand Committee

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, this has been a very useful debate, and I hope to be able to give some clarity on some of the issues that have been raised. It would be remiss of me, and I should have done it earlier, not to thank the noble Lord, Lord Maude, for starting the process of where we have ended up today. He and the noble Baroness, Lady Finn, started a great deal of this under the previous Government. We are now seeking to ensure that the PSFA has the appropriate powers to deliver what they started.

Before I move on to the substance of this group, I think it would be helpful to respond to a question that was touched on by the noble Lord, Lord Palmer, about what a public authority means with regard to the Bill and what we are actually talking about. Public authority is defined in Clause 70 “Interpretation”. The definition is:

“‘public authority’ means a person with functions of a public nature so far as acting in the exercise of those functions”.

It would include, for example, other government departments, arm’s-length bodies and local authorities. This is a broad definition that takes in a wide range of organisations and delivery mechanisms for public functions to ensure that fraud against the public sector in its widest sense can be tackled.

Whether a body comes into the definition of public authority will be tested before a case is adopted, but let us be clear that, especially when we are talking about fraud, it would be surprising if someone was targeting the public sector and they stopped at the remit of one government department just because we define it as one government department. We all know, and noble Lords who have served in government are even more aware, that MHCLG, the Cabinet Office, the DfE and the Department of Health will have multiple users that may touch on different levels of fraud, which is why it is important that we have the breadth of definition.

On the substance of this group, Amendment 4 would remove error from the scope of the amounts that the Minister can recover. This would significantly change and restrict the scope of the PSFA’s recovery function. It would mean that, if the PSFA investigates a case and does not find fraud but does find that a person has had money that they were not entitled to, it would not be able to take action to recover it, including using the debt powers in the Bill. The PSFA would have to refer the matter back to the public authority concerned to take whatever error recovery actions it is willing and able to take.

In response to concerns raised by many noble Lords, including the noble Baroness, Lady Fox—I am pleased that I was able to make her happy at the beginning of Committee stage—it is very likely that the PSFA will encounter payments that could be classed as error. Fraud and error are difficult to separate. Indeed, the National Audit Office and the PSFA do not attempt to do so in their measurement methodology. This is because proving fraud requires evidence of intent, and it is often impractical or impossible to do so. One of the purposes of the Bill is to do more to evidence fraud and take the right action to tackle it, but I hope noble Lords will agree that when you have money that you are not entitled to, you should pay it back and it should be recoverable if it is not paid back. That has always been a principle that the Government have adopted.

Before I move on to wider detail, I want to touch on some comments made by the noble Baroness, Lady Finn, on the loophole for public authorities. Public authorities are the victims, not the perpetrators. Even without powers, the PSFA enforcement unit is getting referrals. We do not foresee a shortage of cases coming our way. The PSFA must be able to triage and pursue the most impactful and value-for-money cases. This is a genuine question—which is why we are here in Committee—of culture and approach, and one that we should have a conversation about. The Government genuinely believe that a collaborative approach with other government departments will yield more co-operation in terms of investigations than a more aggressive approach. Being invited in will ensure that government departments actively engage with us, as has proven to be the case during our pilot so far.

I believe it will assist your Lordships’ Committee if I briefly set out the circumstances in which a public authority would recover an amount of money. Accounting officers of public authorities are required to follow the principles set out in the HM Treasury publication Managing Public Money in annexe 4.11, which is— apparently—readily available to noble Lords. The relevant section states:

“Most organisations responsible for making payments will sometimes discover that they have made overpayments in error. In principle public sector organisations should always pursue recovery of overpayments, irrespective of how they came to be made. In practice, however, there will be both practical and legal limits to how cases should be handled. So each case should be dealt with on its merits”.


Amendment 5 would remove the words:

“only at the request of that public authority”

from Clause 2(1). I believe the intention of this amendment is that PSFA should be able to simply decide to open a fraud investigation irrespective of the wishes of the target of fraud, in the same way that the police can open an investigation into other crimes. However, omitting the deleted words but not otherwise changing the clause would create an element of uncertainty over who is responsible, in the first instance, for dealing with fraud against a public authority. At the moment, it is clearly the public authority. If the intention of this amendment is that it should be for the Minister for the Cabinet Office to decide to investigate, whether or not the public authority wants the Minister to step in, this may conflict with the preservation of public authorities’ own fraud functions in Clause 2(5)(b).

Responsibility for managing fraud is, in the first instance, given to accounting officers of public authorities, as set out by Managing Public Money annexe 4.9—which I am sure all noble Lords have read. There may also be other unintended consequences by the adoption of this amendment, specifically whether the revised working of the clause might actually compel the Minister for the Cabinet Office to investigate all public sector fraud. That is something beyond the current capacity of the PSFA, which I am sure we will discuss in great detail later in Committee. If the PSFA finds fraud off its own bat, as it were, it might not then be clear on what legal basis, if any, it would be able to recover it, as it would not be acting on behalf of the public authority per se. The Government seek to maintain the status quo of acting at the request of public authorities as a matter of operational practice as set out in this Bill, in order to prevent any confusion.

The noble Lord, Lord Maude, raised a query about the Treasury not taking this seriously. The PSFA reports to the Cabinet Office and HMT. It works closely, advising HMT on fraud as part of the spending review process. I hope that that is somewhat reassuring, given where we are in the spending review process.

Amendment 6 would remove the restriction in Clause 2(2) on the PSFA undertaking cases at the request of the DWP and HMRC. This would be a significant change in policy intent. HMRC and DWP have 84% of the counterfraud resource across His Majesty’s Government, including thousands of people and their own designated powers. The PSFA role envisaged is supporting those departments which do not have well-developed fraud investigation, enforcement and recovery functions or powers, not seeking to subsume those with targeted powers that are already well established. For once, this is a government department not seeking to gather other people’s power and staff. Neither HMRC nor DWP need the further assistance of Part 1 of this Bill and there are many other public authorities which do.

[Baroness Kramer (LD)]

If the Minister does not mind, can I pick up the issue that the noble Lord, Lord Maude, raised? Nobody knows how to manage government more closely than him; he is deeper steeped in this than any of us. How does the Minister anticipate dealing with the fragmentation of investigation? If HMRC is chasing down someone, you can almost be certain that it will be dealing with public procurement in a different way and that there will be other issues around that particular entity. Is there a mechanism she sees that will break down those siloed lines?

[Baroness Anderson of Stoke-on-Trent (Lab)]

I reassure your Lordships’ Committee, particularly the noble Lord and the noble Baroness, that the PSFA and HMRC or the DWP can and will do dual investigations and work closely together. They have their own powers. I think the case of HMRC is probably more relevant than the DWP, but they will work collaboratively and do joint operations while having their own separate remits. It is not that they will not work together; however, we anticipate that especially where there is evidence—as I said earlier, it is about breadth of government—we would expect the majority of the PSFA’s work to be outside of those government agencies or public authorities.

Amendment 7 is unnecessary because it straight- forwardly duplicates matters already dealt with elsewhere in the Bill. Clause 1(1)(a) states that the Minister is given the function of investigating “suspected fraud” against public authorities. Clause 70, the interpretation clause, defines “suspected fraud” as

“conduct which the Minister has reasonable grounds to suspect may constitute fraud”.

I hope that the noble Baroness, Lady Finn, is content that the issues she raises in this amendment are appropriately dealt with.

Finally, Amendment 8 would restrict the fees that the PSFA could charge a public authority for investigation, enforcement or recovery action to no more than the amount that is recovered. Cash recovery is the hardest part of enforcement. Many initiated investigations will close without reaching the recovery stage—for example, because no fraud is found, an alternative approach is taken or because recovery is not possible even if the investigation is successful. The amendment would mean that no fee could be charged in those cases, despite the PSFA having necessarily invested resources into the investigation with the agreement of the public authority to have taken the case and undertaken the actions in the first place. That does not represent good value for money and runs contrary to the guidance in Managing Public Money on cost recovery.

In the most serious cases, cash recovery may not be the main or even a major factor; it will be the disruption of criminal gangs and prosecution of serious offenders. Such cases may be long, complex and multi-agency, and costs will probably exceed any potential recovery quite quickly. In cases of organised crime, assets may be irretrievable, laundered beyond reach or overseas. The public interest in investigation is to punish the criminals. The adoption of this clause would also fail to acknowledge or promote the deterrent effect of the investigations. The PSFA cannot be restricted in the cases that it selects by how much of its costs it can recover; that is counterproductive and counterintuitive.

I have two other points to raise.

[Baroness Anderson of Stoke-on-Trent (Lab)]

There is a balance here, because of the positives that go alongside this. There is a genuine issue that, if a criminal gang is actively targeting a public authority, the investigation and prosecution of those people in itself is something that the public authority would wish to see. There will always be costs involved in criminal activities, even if they cannot all be recovered. The police actively investigate criminal gangs, with the pragmatic understanding that not all costs can be recovered. There is also a deterrent effect in prosecuting people to ensure that everyone is aware that, if you defraud the state, you will be prosecuted. We will not always be able to get the money back, but we must be realistic about what is in front of us and what we can achieve.

[Baroness Kramer (LD)]

I have not thought this through, but a no win, no fee approach seems quite useful. If the PSFA, which will have many successful prosecutions where it brings in fees that are well above its actual costs, it will have a resource that will surely allow it to pursue cases where there is not a successful recovery but where it is important for the case to go ahead. I am just wondering whether there is not a model that might work more effectively.

[Baroness Anderson of Stoke-on-Trent (Lab)]

The noble Baroness makes an interesting point. That is why the Cabinet Office and the PSFA are adopting a test-and-learn approach to see what will and will not work. Having said that, we have to be realistic that we will not always be able to recover funds and someone has to pay for the cost of the investigation. The balance of what that looks like is something we will have to explore as cases progress.

--- Later in debate ---

[Baroness Kramer (LD)]

My Lords, I will just pick up the issue that has been raised by the noble Lord, Lord Vaux. We are dealing tomorrow with a statutory instrument that attempts to provide safeguards against banks and other organisations deciding to close people’s bank accounts or to deprive them of other financial services. It is often the people who are under the most financial pressure who find it difficult to get banked in the first place. They can get a basic bank account if they are lucky, but to get a bank account with any of the features that make financial life reasonable is exceedingly difficult. I therefore share the noble Lord’s concern that we do not start a hare running.

Banks are eager to offload people who do not have a lot of exciting and interesting activity. If this notice gives them an excuse to do that, I can see that an awful lot of banks will seize that opportunity, so I raise this as an issue to be wary of. In fact, we have an SI going in the opposite direction tomorrow, so this is really for the Government to make sure that one hand knows what the other hand is doing.

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, I apologise in advance, because I think we are about to have a vote—or not, if the noble Baroness, Lady Kidron, does not press her Motion.

Some significant points have been touched on in this very short debate. I will respond to each amendment in turn. Amendment 9 looks to introduce a test of reasonableness to determine whether an authorised officer has appropriately considered that information sought is both necessary and proportionate. Clause 3(1)(a) and (b) already set out the 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 an authorised officer has reasonable grounds to suspect has committed fraud.