Loss of Tax Credits Regulations 2013

Lord German Excerpts

Monday 18th March 2013 Grand Committee

[Lord Eatwell]

My Lords, I am grateful to the Minister for introducing these regulations. Broadly, from this side of the Committee, we support them wholeheartedly. However, they raise a number of questions in my mind which I would be grateful if the noble Lord could answer.

On my first, broad-brush, question, the Minister referred to the scale of benefit fraud as £1.9 billion a year. Can he tell the Committee how this compares to the Treasury’s estimate of the losses due to tax avoidance and evasion? I think he will find that the estimate of losses in those areas is many, many times greater than that for benefit fraud, even though there is, quite rightly, a condemnation of benefit fraud.

The specific measure, as the Minister told us, removes benefit from those who have been fraudulently claiming it. Has the department or the Treasury investigated whether those people from whom benefit is being removed actually needed the money, and whether there are those who did not need the money? If a relatively wealthy crook is pursuing benefit fraud, taking the benefit away from them costs them nothing. They have just taken a punt on a particular scam and now they have lost out, so this measure does not really matter very much. However, if they were people who were actually impoverished but for some reason or other were not adequately covered by existing regulations and were then behaving fraudulently, they may not now have anything to live on. What are they supposed to do? Do we have an estimate, among these fraudsters who are depriving us of £1.9 billion, of those who needed the money and those who did not?

I raise this particularly because the Minister’s welcome remarks on child tax credit suggest that there is a feeling, perhaps not in the Treasury but in the department, that people may need the money; the Treasury never thinks that anybody needs any money. I am a bit puzzled as to the nature of this penalty. Of course, if somebody is fraudulently extracting funds from the Government, from the taxpayer, they should be stopped from doing so. However, if it so happens that this person will then be completely impoverished, we must ask what our society will do about them. This comes back to whether they needed the money. How many of these fraudsters are in fact quite well off crooks from whom this is a trivial change, and how many of them are people whose circumstances are so desperate that they are willing to break the law? Of course we should not allow them to break the law, but can we consider what the circumstances of such families might be once the appropriate penalty is applied?

[Lord German]

My Lords, I, too, welcome these regulations, but again they are a round two as they match the Social Security (Loss of Benefit) (Amendment) Regulations 2013. I have a number of questions. The first relates to what happens under universal credit to the various sets of regulations that we have been discussing today, which also have their mirror in regulations brought forward by the DWP. It may be a bit of a heresy to say this, but if we are to have separate regulations from separate departments, might it not be a little more useful if we were to back to back them in the same slot so that we could at least look at them together and perhaps save a fair bit of time and effort? Universal credit gives us that opportunity, since we will be looking at these regimes in the round.

My second question relates to the three-year sanction, which is the heaviest of all the sanctions, and the use of the words “deliberative or organised offences”. Has that definition of what is a deliberative offence and what is an organised offence been codified in the handbook and regulations given to decision-makers—both those in the Treasury and obviously those who are to be responsible for universal credit—in order that the level of understanding is of a high nature? When someone goes to court and gets a sentence, we can see that being clearly identified. However, there may be occasions when this is dealt with outside the court through an administrative procedure, in which case there needs to be a clear understanding of when these heavier sanctions will be applied.

I understand that the decision-makers will also be given a level of discretion about the boundaries between some of these sanction periods. Can my noble friend say a little more about the nature of that discretion and whether a framework will be given to the decision-makers in each of these cases, so that we have some certainty that the worst and most difficult offenders will be given the heavier sentences? Will there be any form of appeal internally, apart from the normal tribunal case, where someone has appealed against their sanction? Perhaps my noble friend could give us some idea of how that mechanism will work.

[Lord Freud]

My Lords, let me try to deal with the points raised. There was a rather interesting question from the noble Lord, Lord Eatwell, about the division between what I think he would call the crooks and the desperate. The best way I can approach that is to look at the way in which fraud develops. I think it is right to say that 80% of the fraud develops out of people not informing of a change of circumstance. There is a drift there that indicates that we are not talking about that many who are desperate because, in one circumstance, people were clearly functioning at a certain level of benefit or tax credit. They then got supplemental income elsewhere and kept the extra, to which they were not entitled. That is quite a typical fraud, so on balance we are talking about crooks here. That is the best figure that I can give the noble Lord. I certainly have not seen anything better, and as your Lordships can imagine I see quite a lot of data.

One of the points that my noble friend made at the end of his last question was about discretion. I must make the point that we are now talking not about the conditionality sanctions, which this can often be confused with, but about people who have committed fraud, have usually gone to court and have had a punishment laid down by the court. There is no doubt about that and it is not in the discretion of our decision-makers. That is not true at the margins, where people accept an administrative penalty, which is at a much lower level. However, as you move up the scale, with repeat offences and the serious offences that we are most concerned about, it becomes a court matter and, to that extent, is not a matter of our codification. The serious offences that I am talking about are laid down in regulations. I speak from memory but I think we are talking about £50,000 offences, serious identity fraud such as trying to pass yourself off with a different identity: that kind of thing.

On my noble friend’s last point, we are bringing the regulations on working tax credit closely together with what happens to today’s benefit system, with a view to pulling both of those into the UC sanction regime. They are being pulled together with a view to there being relatively little change in the overall approach and amount when UC comes into effect for particular people.

I think that covers all the issues that have been raised. The amount of money, £1.9 billion, is substantial, and we want to make sure that it is fully realised that this is not acceptable or safe behaviour. I do not have to hand a comparison with our estimates on tax evasion and tax avoidance. Tax avoidance, as the noble Lord, Lord Eatwell, will be fully aware, is a different matter from tax evasion, but our concern about tax evasion is at absolutely the same level—it is the same offence as defrauding the benefits system.

We need to send out a strong message that this type of fraud is not tolerated. We also believe that, although fraudsters must be promptly and severely dealt with, innocent parties should be protected, which is why this relates only to working tax credit and not to child tax credit, and why we will only reduce working tax credit by 50% in households where one member of a couple has not committed an offence.

I seek the support of noble Lords for these regulations. Indeed, I hear that I have it and I commend them to the Committee.