Public Authorities (Fraud, Error and Recovery) Bill

David Pinto-Duschinsky Excerpts

2nd reading
Monday 3rd February 2025 Commons Chamber

[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.

--- Later in debate ---

[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.