Public Authorities (Fraud, Error and Recovery) Bill

Lord Sikka Excerpts

2nd reading
Thursday 15th May 2025 Lords Chamber

[Lord Sikka (Lab)]

My Lords, it is a pleasure to follow the noble Baroness, Lady Coffey, and I take this opportunity to congratulate the noble Baroness, Lady Spielman, on her splendid and insightful maiden speech. I look forward to hearing more from her in this House.

A focus on fraud detection, prevention and recovery is most welcome, but I seek some clarity in this Bill. Since the abolition of the Audit Commission, the focus on efficiency and effectiveness of local government spending has been diluted. If we have not got the appropriate regulatory structure for public bodies, it is very difficult then to impose another structure and say that we are somehow going to deal with fraud. We have to remember that the public sector is not hermetically sealed from the private sector, and that the proceeds of fraud always go through financial institutions. When we look at those, we find that the regulator’s public interest duties are increasingly eclipsed by a duty to promote industry, growth and competitiveness.

The experience of tackling fraud in this country shows us that that is secondary to political conveniences. For example, existing laws are not really enforced, and successive Governments have gone out of their way to protect crooks. We are still waiting for an investigation into the 1991 closure of the Bank of Credit and Commerce International. It has not even begun.

In 2012, HSBC was fined $1.9 billion in the US for money laundering. The then Chancellor, George Osborne, and regulators combined to urge the US authorities to go easy on the bank. There has been no UK investigation into that to date. Despite requests which I made ever since I have been in this House, no statement has been made to explain the cover-up by Governments and why they tolerated criminal conduct by HSBC.

Frauds at HBOS going back over 20 years have yet to be investigated. The FCA, the SFO, the police and the Treasury passed the buck to Lloyds Bank, which promised a report by 2018. To this day, no report has bene published. In Written Answers to me in this House, successive Ministers have excelled at doing absolutely nothing.

There were fewer than five prosecutions of the enablers of tax evasion in 2023-24. Big accounting firms that advise the Treasury and the Government never get investigated for crafting tax abuse schemes. The Criminal Finances Act 2017 was introduced to tackle corporate tax evasion, but to this day no prosecution has taken place.

In December 2022, the Government sued PPE Medpro for alleged fraud, but the case has yet to be heard in the courts. England and Wales have a backlog of 75,000 Crown Court and 310,000 magistrates’ court cases. It is extremely unlikely, I am afraid, that we will be able swiftly to prosecute fraud.

Nothing in the Bill curbs the political expediency of cover-ups. Perhaps the Minister would like to comment on that.

The second part of the Bill, dealing with benefit fraud, grants the Government draconian powers to snoop on the bank accounts of the poor, old, sick and disabled. The Bill assumes that all recipients of benefits have criminal tendencies and must therefore be denied financial privacy. It empowers the DWP to compel banks and financial institutions to examine accounts of benefit claimants and provide specified information to help it verify the eligibility of benefits claimants.

The banks are required to develop algorithms to search and report information. The cost of developing these algorithms will be borne by banks and ultimately passed on to customers. Can the Minister say what the initial set-up costs and the annual operating costs for the banks, which will be passed on to customers, will be?

For the new unrestrained surveillance, no court order is needed, the affected individuals will not be told and there is no right of appeal against the surveillance. What information the DWP will require has not yet been specified. The Government have promised a code of practice but, as the Minister indicated earlier, that has not yet been published and will possibly not be capable of being fully amended in Parliament, if I understood the Minister correctly. It is likely to be presented as a fait accompli. The requested information probably would relate to some thresholds which, if exceeded, may generate suspicions of fraud. That is itself highly problematic. Suppose you give a loved one a large sum to buy a piece of furniture and that money lingers in their bank account for a while. Will they now be construed as having extra savings and therefore be denied universal credit? Will they be called fraudsters or whatever?

A mistake by the reporting bank could have severe consequences for wronged individuals. There are nearly 7 million claimants of universal credit, and an error rate of 1% could cause 70,000 people to lose universal credit. Can the Minister explain who will compensate the innocent people? Bearing in mind the recent Post Office scandal, the idea that computer systems are utterly reliable is simply unacceptable in this case.

The Bill does not promise legal aid to enable anyone who is negatively affected by the DWP’s actions to seek advice or represent themselves in the court. How are the poorest people then to get any justice? The DWP can apply to the court to disqualify a debtor from driving, which is absolutely bizarre—why driving licences but not, say, the ability to buy a mobile phone or even join a political party? It is bizarre.

The legislation would initially apply snooping powers to recipients of universal credit, pension credit and employment support allowance, but ultimately it is likely to be extended to all benefit claimants. At the moment, the Bill exempts recipients of the state pension, but it does not follow from that that the pensioners will in fact be exempt. For example, 1.6 million pensioners receive pension credit, which opens the door to winter fuel payment and housing and other benefits. Their bank accounts will come under scrutiny. Pensioners are not exempt, contrary to what some are saying. We are all one serious illness or accident away from possibly relying upon social security benefits. Ultimately, all of us will be affected, so it is no good selling the Bill by saying that we are targeting a minority—it targets everybody.

What is the extent of fraud that the Government refer to? The 2023-24 figures suggested that benefits were overpaid by about £9.7 billion, of which about £7.4 billion related to alleged fraud, which is based on extrapolation from a sample. That amounts to about 2.8% of welfare spending. The actual percentage of claimants who indulge in fraud is very, very small: 3.9% for housing benefit and 3.9% for pension credit. These small rates do not, in my view, justify powers for suspicionless snooping on the bank accounts of all claimants.

One has to ask whether the Bill is even necessary. For example, the DWP currently has the power to compel prescribed information holders to share data on individuals if fraudulent activity is suspected. HMRC already shares banking data with the DWP. Under the Proceeds of Crime Act 2002, financial institutions too must notify law enforcement agencies of suspicious activity.

Overpayment constituting fraud and error may also arise from the DWP’s own shortcomings. For example, the form to claim pension credit, which opens the door to winter fuel payment and other benefits for pensioners, is 22 pages long and asks 243 questions. The form to claim PIP is 50 pages long and has intrusive questions about matters such as bathing and personal cleaning. Many people would be embarrassed to answer those intrusive questions and then discuss them with absolute strangers. At what point does an incorrect answer become fraud? I hope the Minister will be able to tell us, because it is a vital question.

In principle, anyone receiving public money can commit fraud, but the Bill removes financial privacy only from the poor, old, sick and disabled. It is discriminatory. The normal assumption in law is that people are innocent until proven guilty. The Bill reverses that presumption. It makes a mockery of equality laws and is likely to fall foul of Articles 8 and 14 of the European Convention on Human Rights. Benefits can be received by Britons residing abroad and paid into a foreign bank account. The UK can never acquire the power to snoop on bank accounts subject to another country’s regulatory laws. Will the Minister confirm that anyone who puts money in a foreign bank account will be beyond the reach of the UK Government’s new snooping requirements? Could this encourage some people to deposit their money in foreign bank accounts and thus develop an avoidance strategy?

Under the Bill, banks become a de facto arm of the state and can no longer be relied upon to provide confidentiality to their customers. I think that that is a bad thing. As banks bear the cost of surveillance, they might be tempted to refuse bank accounts to recipients of benefits. That too would be a bad development. What safeguards exist to ensure that banks cannot do this? To avoid snooping, landlords might refuse to have benefits paid directly into their bank accounts, a policy that has been pushed by successive Governments, so will the Bill increase homelessness among the poor? Will the Minister publish a list of possible unforeseen consequences and how the Government are going to deal with them?

As an academic, whenever I did research and came to some policy recommendations, we always asked what might be the 20 or 30 arguments against our policy, and weighed up the options in light of that. Will the Minister help us to do that? The surveillance initiated by the Bill will not apply to thieves, tax dodgers, money launderers, scammers or company directors disqualified from holding office by malpractices. No one robbing a bank or committing identity theft is to be deprived of a driving licence, but those accused of benefit fraud will be. The Bill seems fairly unfair—at least it looks that way to me—and I urge the Government to rethink parts of it.

--- Later in debate ---

[Baroness Sherlock (Lab)]

This may be a matter that we might more usefully explore in Committee, but I shall give my noble friend a simple example. There are certain compensation payments that are not taken into account in terms of eligibility for benefits. They are excluded from the capital limits. So it may be that somebody has received a compensation payment. There is guidance about circumstances in which people may have money in their account. The point is that cases will be looked at individually before they are pursued. There is a requirement on fraud investigators to look at all information and chase down all avenues of information, so they will do that and make an appropriate decision.

Just to be clear, on benefits in scope, the initial use of the power is focused on three benefits: universal credit, employment support allowance and pension credit. The reason why is that that is where the highest levels of fraud are at the moment. The noble Lord, Lord Palmer, will have noticed that carer’s allowance is not on the list for the EVM. The two types of fraud and error we are targeting initially—breaches of capital and the living abroad rules—are significant drivers of fraud and error in those benefits. For universal credit, nearly £1 billion was overpaid last year as a result of capital-related fraud. Once fully rolled out, that measure alone will save £500 million a year. The state pension is expressly out of scope and cannot be added even by regulations, and that is sensible given that the rate of state pension overpayment is just 0.1%.

Somebody asked me whether we plan to add any other benefits. The answer is no. We cannot rule them out because fraud may change in the future and different benefits may be subject to different levels of fraud.

A number of noble Lords, including the noble Lord, Lord Vaux, the right reverend Prelate the Bishop of Lichfield and the noble Baroness, Lady Stedman-Scott, raised the use of AI and automated decision-making. To be clear, we are not introducing any new use of automated-decision making in the Bill, so no such new use will happen as a result of it. The DWP and the PSFA will always look at all available information before making key decisions about the next steps in fraud investigations or inquiries into error. Fraud and error decisions that affect benefit entitlement will be taken by a DWP colleague, and any signals of potential fraud or error will be looked at comprehensively.

Given the arguments made by those who think we are not going far enough, and by those who think we are going too far, we appear to be Goldilocks in this. I think we have got the balance right now. Goldilocks is not always right, I accept that, but I think we have landed in the right place because of the safeguards the Bill includes to ensure that its measures are effective and proportionate. Those safeguards provide protection but also accountability and transparency.

I will not go back over all the different kinds of oversight, but on the appointment process, I assure the House that the process for the independent people who will oversee EVM and the PSFA’s measures will be carried out under the guidance of the Commissioner for Public Appointments and will abide by the Governance Code on Public Appointments throughout.

I am grateful for my noble friend Lady Alexander’s compliments. I would suggest that she herself apply, but she might not qualify for the independence threshold entirely, as one might hope.

I shall say a brief word on safeguards. The Bill includes new rights of review and appeal. The DWP will still provide routes for mandatory reconsideration of decisions relating to overpayment investigations, followed by the opportunity to appeal to the First-tier Tribunal. For direct deduction orders, again, there are new routes for representation and review, followed by appeal to the First-tier Tribunal, while the court’s decision in relation to a disqualification order can be appealed on a point of law.

On driving licences, I take the point made by my noble friend Lord Sikka: why driving licences and not membership of a political party? I hate to break it him, but it is just possible that not being allowed to join a political party does not have the same deterrent effect as losing a driving licence—not for us, obviously, but we are not typical, although it is touch and go. I assure the House that this measure has been used for a long time in the Child Maintenance Service. As the noble Baroness, Lady Stedman-Scott, said, its effectiveness is shown in that it almost never needs to be used.

As a final reminder, this is about debt recovery. It is about people who, by definition, are not on benefits and not in paid employment. The reality is that if you owe DWP money and you are on benefits, the DWP can already deduct it from your benefits, and if you get a wage packet the DWP can deduct it from your wages. However, if you are none of those things—if you are privately wealthy, self-employed or paid through a company—and you owe the DWP money, the department does not have the same ability to go after that money as it does for those who are on benefits or in PAYE. The Bill gives the department the opportunity to use measures such as deduction orders and other tools to try to bring people to the table. If someone comes to the table to have a conversation, we will begin to arrange a payment plan. The other measures are there only if people refuse to engage and simply will not come along and do what they ought to do.

[Lord Sikka (Lab)]

Since my noble friend mentioned me, I think I am honour-bound to ask her a couple of questions. Will she confirm that foreign bank accounts will not be covered by any of the measures in the Bill?