Social Security (Loss of Benefit) (Amendment) Regulations 2013

Lord Freud Excerpts

Wednesday 13th February 2013 Lords Chamber

Moved by

[Lord Freud]

That the draft regulations laid before the House on 8 January be approved.

Relevant document: 15th Report from the Joint Committee on Statutory Instruments.

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I can confirm that, in my view, this statutory instrument is compatible with the European Convention on Human Rights.

These regulations support the changes introduced by the Welfare Reform Act 2012 which allow for the toughening and strengthening of loss of benefit penalties for those who commit benefit fraud. These regulations also deal with how these penalties will apply in universal credit. The reason why we are bringing forward these regulations is straightforward. From the research that we have carried out, 41% of claimants think that benefit fraud is easy to get away with, while one-third think that the penalties are not that bad. We need to change the perception that it is okay to steal from the state. It is stealing from taxpayers; it is stealing from fellow citizens; and it is stealing from other benefit claimants.

We accept that the vast majority of people are honest in their dealings with the department. But for those who are not, we need to try to change their behaviour so that they think twice before doing it again. The consequences of their actions must therefore include losing their benefit for a period of time. The more serious or repeated fraudsters should face the harshest treatment. Such behaviour should not be tolerated when you consider that £1.2 billion is lost each year as a result of fraud against the benefit system. It is clear that we have a need to address this undesirable behaviour. This measure is therefore just one of the many we announced in the wider fraud and error strategy. Introducing these changes will help reinforce the message to fraudsters that their actions will not be tolerated and that it is never clever to defraud the benefits system. It will act as a forceful deterrent and encourage a positive change in future behaviour. The regulations before us—the details of which I will now explain—support that aim.

We debated earlier the details of the regulations which cover universal credit sanctions and hardship provisions. I will not dwell on those provisions because they are largely replicated in these regulations. I am sure that noble Lords will recognise that there is a similar need to provide for the appropriate reduction in payments of universal credit during a period of fraudulent loss of benefit. The regulations mean that universal credit claimants, subject to a loss of benefit for a fraud offence, will be paid a reduced rate of universal credit for the penalty period rather than having their universal credit completely withdrawn. This follows the current approach that modifies the effect of the loss-of-benefit penalties imposed on those who are receiving means-tested benefits.

We have set out how we will penalise and treat universal credit claimants who have acted fraudulently while ensuring protection for those claimants who are pregnant, not subject to work-related requirements, or who are responsible for a young child. Those offenders subject to the highest rate of reduction will have their payment reduced by an amount equivalent to the universal credit standard allowance. Where they are in a couple, the reduction will be equivalent to an amount of half of the standard allowance applicable for a couple. In all other cases, it will be reduced by an amount equivalent to 40% of the standard allowance, or 20% of a couple’s claim. This will help ensure that payments for housing costs, for example, are protected.

The regulations also provide for hardship payments of universal credit to be made in appropriate cases. They prescribe the amounts of such payments and the requirements for information that must be fulfilled before they are paid. They also provide for the repayment of hardship payments in certain circumstances. This is in line with existing provisions for other benefits, which we discussed earlier. No one will escape facing a penalty, but safeguards are in place to take into account a person’s conditionality group when the penalty is imposed.

We have also made changes to the loss-of-benefit penalty to be applied to income-related employment and support allowance claimants. In future, such payments may be reduced by 100%. However, this tougher approach will not apply to all employment and support allowance claimants. For example, those who are pregnant, seriously ill, or who are not subject to work-related requirements will retain their payments, but at a reduced amount, depending on their circumstances. Hardship payments will also be available in appropriate cases. These provisions will ensure a similar and consistent approach for universal credit and employment and support allowance claimants in relation to the reductions and hardship arrangements of those benefits that are to be applied where there is either a loss-of-benefit penalty or a conditionality sanction.

The 2012 Act also introduced a provision for a new, immediate three-year loss-of-benefit penalty to apply where a person is convicted of a “relevant offence”—in general, an offence of serious, organised or identity benefit fraud. I think that noble Lords will agree that those who deliberately defraud the taxpayer of benefit payments should face the toughest loss-of-benefit penalties. If someone commits a “relevant offence”, this warrants the application of an immediate three-year loss of benefit.

One relevant offence is specified in the 2012 Act: the common-law offence of conspiracy. That captures the seriousness of the type of offence we intend to be subject to this penalty. However, other offences may be committed in connection with benefit fraud that do not involve serious, organised or identity fraud. We want only benefit offences involving serious, organised or identity fraud to be subject to the three-year loss-of-benefit penalty.

The 2012 Act allows for regulations to set out the other offences that may also be considered “relevant” and therefore justify an immediate three-year loss-of-benefit penalty. The way this will work is that the offences listed in the regulations will be considered “relevant” only when they meet other criteria set out in the 2012 Act. This is because the listed offences are used to prosecute a range of offending.

The three-year loss of benefit penalty will apply in relation to the offences listed in the regulations only where there has been an overpayment of £50,000 or more, where the person receives a prison sentence, including suspended sentences, of one year or more, or where the benefit fraud has occurred over a period of at least two years. These offences are often premeditated, such as where they involve the manufacture of false claims through the creation of false identity or identities, or by the engagement of two or more people to commit benefit fraud on a large scale. We make no apology for getting tough here. There are also some minor technical changes to the existing provisions to specify the appropriate start date of the loss of benefit disqualification period to fit periodicity payment arrangements for some benefits and to update references to certain legislation.

In conclusion, we need to penalise wrongdoing, continue to tackle fraud in the benefit system and seriously deter repeated or serious benefit fraud. These regulations were referred to the independent Social Security Advisory Committee on 7 November 2012, which cleared them without any formal referral. Local authorities have also been kept abreast of the changes. These changes create a necessary, stronger penalties regime. I therefore commend the regulations to the House.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his introduction to these regulations. As has been stated, they are narrowly focused and address particularly the issues of fraud. We share with the Government a strong intolerance of those who, through fraud, deliberately set out to cheat the benefit system. However, the three-year sanction—loss of benefit for three years—driven by non-compliance with conditionality requirements is a serious matter and demands careful scrutiny.

It is understood that these regulations are focused just on situations regarding fraud. The wider issue of sanctions and hardship provisions will be the subject of continuing debate. When we challenged the higher-level sanctions applicable to universal credit, we were told that they should apply only to a handful of individuals. Perhaps the Minister can give us some indication of the likely numbers of individuals expected to be subject to the three-year loss of benefit penalty provided for in these regulations.

The debate on these regulations in the other place covered a number of issues, which I do not propose to range over again in detail this evening. We are better informed about the offence of uttering. We know that these provisions will apply also, as does the sanctions regime, to those in receipt of universal credit who are in work. As the Explanatory Note makes clear, these regulations deal with a new three-year loss of benefit on a first offence following a benefit fraud conviction. The conviction must relate to a serious case of organised or identity-related fraud. The Minister has set out the criteria for that loss of benefit to apply.

We understand why, for universal credit, the measure of any sanction will be related to the standard component and that amounts, for example, for children and housing will continue to be paid, together with any hardship payment. The concern is that when these situations arise, the whole household, including children, will suffer, not only the individual who has committed the fraud. Amounts allocated for children and housing, for example, could be used in whole or in part for daily living expenses, with the increased risk of rent arrears and homelessness. It seems to us that there is an argument that, where there are joint claimants, there should be a presumption that in these circumstances payment should automatically flow to the main carer.

The Minister has touched on the availability of hardship payments and we have already spent some time on those this evening. I do not now propose to raise any further questions on them.

As we are probably at the end of our proceedings, I ought just to take the opportunity to thank the Minister for his display of stamina at the Dispatch Box today and for his determination to do whatever he can to answer the whole array of questions that have been directed at him, which he has done probably with minimal follow-up required in correspondence, so we thank him for that. There are obviously many issues around universal credit, which will run and run, and I am sure that we will revisit them on many occasions over the upcoming months and possibly years. But I think that we should conclude by thanking him for what he has done today.

[Lord Freud]

My Lords, I am particularly grateful that this has been quite a short debate. I appreciate the words of the noble Lord, Lord McKenzie. I do think that the debates we have on these matters are of an extraordinarily high quality. One of the reasons for that is that my department makes an effort to get information out to noble Lords so that these quite complicated matters can be understood and we do not waste a lot of time on points that are just misunderstood. However, I am deeply impressed by the number of people who have expended so much intellectual energy on gaining an understanding of what is in effect a rebuild of our social affairs. I appreciate that very much. As I say, I have taken a lot of ideas from noble Lords and I hope to be able to go on doing so. I therefore thank all noble Lords who have taken part in these debates.

I have one bit of information and one idea to steal from the noble Lord. We think that with the immediate three-year penalty for serious fraud, we estimate that there will be something in the order of 400 cases a year by 2020. The idea I want to take from the noble Lord is one that I do not think we have at the moment. It concerns the redirection of the payment away from the fraudster. That is actually a smart idea in these cases, and perhaps we shall claim it.

[Baroness Hollis of Heigham]

My Lords, this issue arose on the very first debate of the day. Will the noble Lord apply it where all sanctions occur, thus ensuring that there is an assumption that there will be a switch of payment to the main carer?

[Lord Freud]

The noble Baroness always takes a finger and seizes the rest of the arm. I have said that I will look at the idea.

It is clear that we do not have an effective deterrent at the moment. The view from the survey shows that people do not think that there is much to worry about from being caught out. We hope that the new regime will actually make people stop and think before committing a fraud. That is its intention, and I welcome the cross-party support for that. I therefore commend these regulations to the House.

Motion agreed.