Public Authorities (Fraud, Error and Recovery) Bill

Baroness Anderson of Stoke-on-Trent Excerpts

2nd reading
Thursday 15th May 2025 Lords Chamber

Moved by

[Baroness Anderson of Stoke-on-Trent]

That the Bill be now read a second time.

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

My Lords, I am proud to bring this Bill to your Lordships’ House with my noble friend Lady Sherlock. I am grateful for the engagement that we have had with noble Lords on the Bill so far and look forward to working with your Lordships as the Bill progresses. I also look forward to hearing the maiden speech of the noble Baroness, Lady Spielman, which I am sure will be excellent—good luck!

There have always been people who commit fraud. Sadly, this is not a new problem, but over the past decade fraudsters have become increasingly sophisticated in the techniques that they use to steal people’s money, using data, technology and a variety of scams. Banks and similar entities have transformed their ability to spot and stop fraud and to protect their customers’ money. They have invested in new technology and changed processes, but this Government believe that the public sector has not proactively followed their lead. In 2023-24, fraud and error against the public sector reached an astonishing £55 billion. That includes: fraud against our public services, including those who abuse the tax system; fraud by dishonest companies that use deception to win public contracts; and benefit fraud by criminal gangs and individuals. In 2024-25, benefit fraud and error stood at a staggering £9.5 billion a year.

Fraud against the public sector is not a victimless crime. It takes money away from vital public services, erodes trust and harms innocent people. It is ultimately public services that suffer, and it is taxpayers who are the victims of this crime. They are rightly incensed when their money lines the pockets of criminals. It is theft from the taxpayer—from every single one of us. Delivering this Government’s plan for change is possible only if we do more to ensure that taxpayers’ money is protected and spent wisely. The Government made a manifesto commitment that they will safeguard taxpayers’ money and will not tolerate fraud or waste anywhere in public services. This Bill is part of our plan for delivery.

I turn to the detail of the legislation before us. Part 1 of the Bill contains measures that gives the Public Sector Fraud Authority—I will refer to it as the PSFA for the rest of my speech—within the Cabinet Office powers for the first time to tackle fraud across the public sector on behalf of government departments and public bodies that do not have the capability, capacity or powers to do so. Noble Lords will know that the scope of the activity of the state is vast.

Fraudsters will attack vulnerabilities wherever they can find them, and the impact is not just on the state but on real people. For example, in a case referred to the PSFA earlier this year, a firm had received £370,000 in funding to provide skills training, having, it is believed, provided false or inaccurate details to create the false impression that the criteria for the funding scheme were met when in fact they were not. Not only does the fraudster gain, but the money is diverted from people who could legitimately benefit from it. In another example, a grant of £125,000 was awarded to a youth group focusing on community activities. It did not go to the intended purpose but was, it is believed, defrauded. That money would have had a direct impact on the ground in the community, but did not, because we were defrauded, as were that community.

At the moment, however, it is difficult for public authorities that have been defrauded, or the PSFA or other authorities, to take the kinds of actions that the public expect against these and other much larger frauds that take place. It is extraordinary that they cannot get the necessary information to prove the offences and do not have the powers to take enforcement action or recover funds.

Part 1 of the Bill puts this right. It builds the foundational structure for a long-lasting change in how public authorities take action on fraud where they cannot do so now. First, the Bill will provide the PSFA with powers to obtain search warrants from the court to enter premises and seize evidence as part of fraud investigations. So in the skills case I mentioned, the PSFA would have been able to go into the so-called provider’s premises and seize payroll and enrolment records to prove whether it was entitled to the funding. These powers will be used only when approved by the courts, and the police will continue to be responsible for arresting suspects if required.

Secondly, the Bill contains measures for the PSFA to compel businesses and individuals to provide information where there is a suspicion of fraud against the public authority, and to penalise them if they do not. In the youth group case, PSFA could have required business records to be provided using these powers. Separately, the Bill also provides powers to allow the PSFA to request communications from telecom providers using the Investigatory Powers Act 2016, authorised and overseen by the Investigatory Powers Commissioner’s Office. When fraudsters conspire to attack the state, this power will enable investigators to connect to their network and show who is involved. The Bill also enables information-sharing between the PSFA and other parties in the course of a fraud investigation, which is vital in tackling multi-agency cases.

Thirdly, the Bill introduces the power to impose civil penalties on behalf of other public authorities against those who have committed or have tried to commit fraud. These penalties can be used as an alternative method of taking action against fraudsters, compared to often lengthy criminal prosecutions. The introduction of civil penalties for fraud means that there can be meaningful consequences for breaking the law, even when criminal prosecution is not appropriate or viable.

Fourthly, the Bill will introduce new debt recovery powers for the PSFA, so that we can get public money back from those who can afford to repay but refuse to do so. This includes powers to recover fraud-related or error-related debt from an individual’s earnings, using a deduction from earnings order, or directly from financial accounts using a direct deduction order. These are broadly similar to existing powers used across government, including by HMRC. I reassure your Lordships’ House that there will be strong safeguards in place for these powers, to ensure that vulnerability is considered and deductions are affordable and fair. The PSFA’s authorised investigators and officers will be highly trained, to the same standards as the police, for the criminal powers in Part 1 and will be members of the Government Counter Fraud Profession, which sets high standards of professionalism, ethics and integrity that members must meet.

Finally, to address some of the fraud we saw over the pandemic, the Bill will double from six to 12 years the time limit for civil claims to be brought in alleged cases of Covid fraud, giving public authorities more time to investigate complex cases relating to those who exploited a national emergency for personal gain. It is an affront that some people used the time of a national crisis to loot the public purse, and this Government are committed to taking action, of which this is the first step.

Part 2 is focused on addressing fraud and error in the social security system. Here, the Bill will modernise, extend and strengthen DWP’s existing counter-fraud powers, bringing it in line with other bodies such as HMRC. It introduces new powers that will improve DWP’s access to important data that can be used to find and prevent fraud and error more quickly and effectively and, crucially, improve DWP’s ability to recover money from taxpayers. Taking each of these in turn, first, there are comparable powers to those I described for the PSFA, which will allow authorised investigators in the DWP to apply for and obtain search warrants to enter premises and seize evidence relevant to fraud investigations. These powers will be used by specialist DWP serious and organised crime investigators. This will reduce DWP’s reliance on the police and, as in the PSFA’s case, these powers will be used only when approved by the courts; the police will continue to be responsible for arresting suspects.

Secondly, the Bill will update DWP’s information-gathering powers for investigating fraud. At present, DWP has the powers 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—for example, airlines, which might hold travel records that are relevant to investigations of fraud conducted overseas. To add to that, there is limited ability to require responses to requests to be sent electronically; currently, DWP cannot make someone provide this information digitally. This approach is somewhat outdated in a digital age and underlines that the changes in the Bill are long overdue. 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. This is comparable to the information-gathering provisions I described for the PSFA earlier.

Thirdly, the Bill makes provisions for the DWP’s new eligibility verification measure, which will enable the department to require banks and other financial institutions to provide crucial data to help identify incorrect benefit payments that people might be getting as a result of not meeting the rules for their benefit—for example, if someone has too much in savings, which could make them ineligible for a benefit, or if they are fraudulently claiming benefits while living abroad when they should be living in the UK. This data will mean that we can identify potential incorrect payments much sooner for key eligibility criteria.

We know that people lead busy lives and sometimes genuine mistakes happen. That is why this measure is so important, as it will help to identify not only potential fraudulent cases that require further investigation but errors too, ensuring that the DWP can correct errors quickly, and preventing people building up large debts that they then need to repay. In response to considerable misinformation about this measure, I want to stress to your Lordships’ House that under the eligibility verification measure, the DWP will not be able to access people’s bank accounts or look at what they are spending, nor will it be able to share any personal information with banks. Furthermore, this data will be considered without the presumption of any wrongdoing. No decision about benefit entitlement will be made from the data gathered through this measure alone; and, crucially, any final decision about someone’s benefit entitlement will always be taken by a human being. The Information Commissioner has noted that this proposal addresses many of the concerns the commissioner held about the previous Government’s proposals.

The fourth element of Part 2 is about broadening DWP’s abilities to punish fraudsters using a financial penalty as an alternative to seeking prosecutions. At the moment, DWP can give financial penalties only in cases of benefit fraud. Part 2 extends our ability to use them in the cases of fraud against any type of DWP payment. For example, if we have a future grant scheme similar to the Kickstart employment scheme, we will be able to ensure that that money could be recouped. This will ensure that more fraudsters committing a wider range of fraud can be dealt with swiftly without going to court.

Finally, the Bill contains new debt recovery powers for DWP. These powers will enable the DWP to recover money in cases where a person owes the department money but is not in receipt of a benefit or in Pay As You Earn employment, where there are existing powers. This will be used only where people repeatedly refuse to agree to affordable voluntary repayment terms with DWP. In these cases, the Bill will enable DWP to obtain from banks the bank statements of these debtors, to verify that they have sufficient funds to pay. Having considered this information, DWP debt enforcement agents will determine what is an affordable deduction, with maximum limits for regular deductions set out in the legislation. DWP can then recover the money from their bank accounts, through either a one-off lump sum or regular deductions. This will be done in a fair and manageable way, with time for the person to make any representation, and the right to appeal. No one will be pushed into hardship because of this action.

As a last resort, if someone owes DWP more than £1,000 and puts their money out of reach of our other recovery methods, DWP can apply to the court to disqualify that person from driving for up to two years. This is similar to the powers 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, and it has proved somewhat effective in encouraging debtors to engage with the process. A court will not be able to make a DWP disqualification order if it considers that the person needs a driving licence for work or for another essential purpose, such as if the person is disabled or a carer. This disqualification order will always at first be suspended, and repayment terms will be set by the court. A person will be disqualified from driving by the court only if the repayment terms the court has set are not met without good reason. This measure is for people who have repeatedly refused to engage with DWP’s debt management system and have actively frustrated the process of debt recovery. It is an important power that is designed to bring debtors to the table to agree voluntary, affordable and sustainable repayment plans with the DWP.

We are clear that an individual keeping money to which they are not entitled is serious and will result in serious consequences. These powers ensure fairness in debt recovery, seeking to guarantee that those who are no longer on benefit or in paid employment are not treated more favourably and able to evade repayment of money owed to the public sector.

Parts 1 and 2 come with strong new safeguards, including provision for independent oversight and reporting. The Cabinet Office and the DWP will commission His Majesty’s Inspectorate of Constabulary and Fire & Rescue Services to undertake inspections on the use of the new investigations powers that both departments are using. The DWP will make a similar arrangement with His Majesty’s Inspectorate of Constabulary in Scotland and the Independent Office for Police Conduct will handle any serious complaints that arise from the use of the new powers of entry, search and seizure for the PSFA and the DWP. The Police Investigations and Review Commissioner will deal with similar matters for the DWP in Scotland.

Separately, the Minister for the Cabinet Office will appoint an independent person to inspect the PSFA enforcement unit’s use of the powers in the Bill. Their work will complement and build on the oversight provided by the inspectorate. The Secretary of State for Work and Pensions will also appoint an independent person to oversee the use and effectiveness of the DWP’s new eligibility verification measure in line with the legislation and the code of practice. Both independent persons are required to provide reports to respective Ministers which must be published and laid in Parliament.

Codes of practice will accompany relevant parts of the Bill and, where appropriate, will be consulted on. Drafts of relevant codes will be made available to noble Lords ahead of Committee. Across the Bill, provision is made for persons subject to the powers to make representations, request reviews or appeal against decisions. These routes will be clear and provide opportunities to challenge the Government’s approach.

Many of the measures in this Bill are not novel to government. Instead, they modernise existing powers and bring the DWP and the PSFA in line with other public bodies, such as HMRC. Overall, this Bill will help deliver the biggest crackdown on public sector fraud in a generation. It is expected to save £1.5 billion over the next five years as part of wider action in the DWP’s efforts to save £9.6 billion.

The Bill delivers the biggest upgrade to the DWP’s counterfraud 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. It is tough on criminals who cheat the system and steal from taxpayers, and tough on people who refuse to pay back money, but fair on claimants, by spotting and stopping errors earlier and helping people to avoid getting into debt. It is fair on those who play by the rules and rely on the social security system, and it is fair on taxpayers, by ensuring that every pound is spent wisely, responsibly and effectively on those who need it. I beg to move.