Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015

Lord Bourne of Aberystwyth Excerpts

Thursday 29th January 2015 Grand Committee

Moved by

[Lord Bourne of Aberystwyth]

That the Grand Committee do consider the Social Security (Penalty as Alternative to Prosecution) (Maximum Amount) Order 2015.

Relevant document: 17th Report from the Joint Committee on Statutory Instruments

[Lord Bourne of Aberystwyth (Con)]

My Lords, I confirm that, in my view, the order is compatible with the European Convention on Human Rights.

Administrative penalties are financial penalties that may be offered to people in certain cases as an alternative to prosecution for benefit fraud or attempted benefit fraud. The conditions for when an administrative penalty may be offered and the amount of penalty to be paid are set out in Section 115A of the Social Security Administration Act 1992. Currently, the amount of administrative penalty that may be offered is £350 or 50% of a recoverable benefit overpayment, whichever is the greater, subject to a maximum penalty of £2,000. This order provides for a new maximum amount of administrative penalty of £5,000 which can be offered in cases where prosecution is deemed not to be appropriate in the first instance.

This means that in the future, depending on the size of the overpayment, an administrative penalty of up to £5,000 may be given. This is in addition to recovering the overpayment and applying a four-week loss of benefit penalty. For example, under the proposed order, where there is a benefit overpayment of £8,000 and there are grounds for instituting proceedings for a benefit-related offence, a penalty of £4,000 could be offered. If accepted, this would need to be repaid on top of the overpaid benefits. Currently, the maximum penalty restriction that could be applied in that example is £2,000. As noble Lords will see, the new maximum penalty of £5,000 can therefore be applied only to cases where the recoverable overpayment is £10,000 or more, so we are not talking about a £500 overpayment attracting a £5,000 penalty; that simply cannot happen. The increased maximum amount of administrative penalty could be applied only in cases where the act or omission that gives rise to grounds for instituting proceedings for the offence to which the penalty relates occurs on or after the coming into force of the order. In other words, it is prospective and not retrospective.

When the current maximum amount of administrative penalty of £2,000 was set in the Welfare Reform Act 2012, we knew that it was important to keep the amount under review. Since then, too many people still continue to ignore warnings and flout the rules to steal from the benefit system. The monetary level of benefit fraud, which is currently estimated to be around £1.2 billion, is unacceptable and unaffordable. In one year alone, there were more than 29,000 penalties for benefit fraud, including convictions. People must do the right thing and ensure that their benefit claims are correct. Clearly, a significant number of people are still not doing this and deliberately defrauding the benefit system. This is why we are taking action now by setting the maximum administrative penalty at £5,000. This will act as a better deterrent and highlight the significant financial consequences which can result from defrauding the benefit system.

I recognise that if the maximum penalty amount were set excessively high, there would be a risk that no one would be prepared to accept it or alternatively they might rather risk being prosecuted for their actions. I come back to the point that this is consensual in the sense that a person does not have to accept the administrative penalty. It is not our intention to prosecute people routinely for lower-level benefit fraud, which would result in them incurring a criminal record that may harm their future job prospects. That would be in nobody’s interests. At the same time, we believe that it is right that where a person incurs a higher overpayment, where prosecution is not being considered in the first instance, the amount of the penalty given should also be higher. For these reasons, I consider £5,000 strikes the right balance.

The department’s general policy is to offer administrative penalties as an alternative to prosecution in fraud cases deemed not to be so serious that prosecution should be considered in the first instance and where there are no aggravating features present. The driver for raising the maximum amount of administrative penalty is further to strengthen the range of measures we have to address and tackle benefit fraud. It also allows for greater flexibility, offering tougher but proportionate financial punishments where prosecution is not considered in the first instance.

Let me reassure noble Lords that we will continue to consider the individual circumstances of a case when deciding whether to offer a penalty or to refer a case for prosecution. In addition, administrative penalties carry their own safeguards. Where a person accepts the offer, they have a cooling-off period of 14 days in which they can change their minds. This ensures that they do not feel pressured into accepting the penalty.

If the offer of an administrative penalty is refused, the case would then be referred for prosecution. The department also has a well established debt recovery process for the recovery of administrative penalties, which can be recovered from benefit payments, deduction from earnings or through other means if appropriate. If evidence emerges that the penalty does not operate as intended, we will look closely at that.

The order aims to change claimants’ behaviour and deter people from committing benefit fraud. It also ensures that the penalties available remain appropriate to address the serious and costly nature of benefit fraud. In conclusion, losing £1.2 billion a year through fraud shows that far too many fraudsters continue to steal from the benefit system. Such offensive behaviour has no place in today’s society and should not be tolerated. The order before the Committee today and its purpose is straightforward. To avoid risk of an administrative penalty, claimants should just be truthful and accurate when making claims and tell the department promptly when their circumstances change. The £5,000 maximum limit for an administrative penalty reminds claimants of the need to do this, and where they do not it reflects the serious nature of benefit fraud. I seek noble Lords’ support for the order today, and I commend it to the Committee.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of the order. The Opposition has no objection to the increase in penalties and therefore to this order. Benefit fraud, like any fraud, is a serious matter and certainly the scale necessary to trigger this increased penalty is one that requires action. However, I would like to take the opportunity to ask the Minister a few questions.

First, the Secondary Legislation Scrutiny Committee commented that since the current £2,000 maximum penalty has been in force for some time—almost two and a half years—it had expected to see a more evidence-based explanation for the increase. It asked the department to issue a revised Explanatory Memorandum—which it did, and I am grateful for that—but as far as I can see its main argument seems to be that:

“the Government considers there are still too many people committing benefit fraud”.

That obviously is true: if one person is committing benefit fraud, too many people are committing benefit fraud. However, the realities of cause and effect are slightly more complicated. The deterrent effect of penalties will be affected by the likelihood of people understanding that they are committing an offence, their belief that they are likely to get caught and the severity of the penalty if they are caught. Can the Minister tell the Committee what evidence he considered when deciding what the right maximum would be in terms of the deterrent effect? The Explanatory Memorandum very candidly states:

“Whilst we cannot estimate the deterrent impact of the measure in terms of the number of frauds committed in the future, the measure still remains an important part of our overall package of measures”.

How do the Government know? If they have no idea what effect it will have, how do they know that it is an important part of their package of measures? It might be a wholly unimportant part. What was the evidence for that?

Secondly, has the department done any research to assess the level of awareness of the level of penalty in order to understand its deterrent effect? If the presumption is that it will be a deterrent but people do not know about it, it will not. What evidence do the Government have about that?

Thirdly, and in some ways most interestingly, what would success look like? Is the aim to pursue more people who have committed benefit fraud, and, if so, does the Minister expect to see investigations and/or prosecutions rise or fall after this introduction?

Although we support the increase in the maximum penalty, the Government need to do more to convince us that they have an effective strategy to counter fraud. When this order was being debated in another place, my honourable friend Helen Goodman expressed concern that the measure might have been put forward simply so that the Government could be seen to be doing something. Since it affects at most 250 people, it would seem to be only a limited contribution. The Government’s Explanatory Memorandum makes it clear that 250 cases a year is the maximum, so what are the Government doing to tackle the bigger problem? There clearly is a problem: in 2013-14 the department overspent by £3.3 billion on error and fraud, some 2.1% of benefits expenditure. This month, the Public Accounts Committee published a very critical report that highlighted the Government’s failures on tackling fraud and error, especially in housing benefit, where overpayments have risen very significantly, from £980 million to £1.4 billion. The same report also concluded that the department’s handling of housing benefit error and fraud did not deliver value for money.

The National Audit Office has also been critical of how the department is dealing with fraud and error. In October, its report said:

“The Department has a target to reduce total fraud and error overpayments to 1.7% of benefit expenditure by March 2015. In his report on the Department’s accounts for 2013-14, the Comptroller and Auditor General noted the Department was unlikely to achieve its 1.7% target”.

The report described the problem as “escalating”. Can the Minister tell the Committee whether the department expects to hit the 1.7% target by that date and what action it is taking to do so?

Finally, the Explanatory Memorandum indicates that DWP fraud investigations resulting in an administrative penalty fell by three-quarters between 2009-10 and 2013-14, from 7,249 to 1,501. Can the Minister explain why he believes that fall took place and on what evidence he bases his answer?

[Lord Bourne of Aberystwyth]

My Lords, I thank the noble Baroness, Lady Sherlock, for her contribution and I will do my best to cover her points.

It is common ground between us that if there is one person fraudulently claiming a benefit, that is one too many. I agree with that. By the same token, I think she would accept that if one increases the penalty for a particular crime, it acts as a greater deterrent. We must of course ensure that it is publicised, and the department will be seeking to do that. This is certainly upping the penalty, and as I understand their position, the Opposition accept that.

In relation to the progress made in tackling this, I should stress that I am referring to benefit fraud rather than benefit error, which means that if a case goes to court, fraud has to be proven. We are not talking about a slight mistake, but fraud, which in court would have to be proved beyond reasonable doubt. It is true to say that the level of fraud as set against benefit expenditure has come down only slightly from 2.2% under the previous Government to 2.1% under this one. I accept that it is certainly true that more work needs to be done.

The noble Baroness asked why we picked this particular figure. The reason is that overpayments between £4,000 and £10,000 in relation to fraud are the second largest single category of fraud overpayments—the most at the lower scale of fraud, as it were. That is why we have sought to focus resources on that particular group. Also, freeing the system up by allowing people to choose administrative penalties means that a matter does not go to court and is less work for the department, which means that we are able to focus resources on the most serious frauds. Numerically, they may be fewer but there are significant fraudsters at the top end of the scale where we feel resources should be focused.

The driver for raising the maximum amount is broadly to strengthen the range of measures that the department has to tackle benefit fraud. I am sure that it is not a silver bullet; we are not claiming that. But we feel that it should make better use of resources and act as a deterrent in relation to that particular group where there is a significant bubble of fraudsters for whatever reason, and it will enable us to focus resources on the most serious fraud cases. That is the scheme.

I will write to the noble Baroness in regard to the particular point of how we are aiming to get to 1.7%. Can she refresh my memory on the target date that we have given for that?

[Baroness Sherlock]

March.

[Lord Bourne of Aberystwyth]

March of this year. I accept that to get from 2.1% to 1.7% is a significant challenge. Perhaps I can write to the noble Baroness on the measures that the Government are taking. Clearly, this is one of them. The support of the Opposition both here in another place, which we are grateful for, shows that we have common cause in trying to ensure that benefit expenditure is focused on those people who really need it. Everyone who steals from the benefits system is effectively stealing from those who really need the benefit. We are committed to driving that figure further down, but I will write to her with the details, if I may.

[Baroness Sherlock]

I am grateful to the Minister for offering to write to me. As I have said, there is nothing between us on this order because we support it, but there are one or two other small questions that he has not been able to respond to. Could he pick those up and include them in the letter so that we do not detain the Committee today?

[Lord Bourne of Aberystwyth]

I am most grateful to the noble Baroness, Lady Sherlock, on that point and of course I will respond fully.

Motion agreed.