Public Authorities (Fraud, Error and Recovery) Bill

Lord Palmer of Childs Hill Excerpts

Committee stage
Monday 9th June 2025 Grand Committee

[Baroness Finn (Con)]

My Lords, our amendments in this group seek to understand the sort of relationship the Government envisage between the PSFA and other public authorities, how the PSFA is to be resourced and sustained, and how we can incorporate greater independent oversight into how the PSFA will cover its costs.

Last week, our discussions covered the effect of the costs of counterfraud investigations undertaken by the PSFA on other departments and public authorities. As our Amendment 8 recognised, the Bill’s current proposals permit the recovery of costs by the Cabinet Office from public authorities, which could potentially be to their detriment. As we and the noble Lord, Lord Vaux of Harrowden, pointed out, this could create a direct disincentive for those authorities to do the right thing and could lead them to fail to refer cases to the PSFA.

As it stands, the PSFA, as constituted under the terms of the Bill, cannot undertake proactive investigations into public authorities even if it has information which constitutes reasonable grounds for an investigation. This places a massive burden of trust on public authorities to refer themselves to the Cabinet Office before an investigation can begin. This burden of trust is often open to abuse, as my noble friend Lord Maude of Horsham demonstrated to the Committee in his interventions last week.

The Bill creates an additional and major disincentive for public authorities to do the right thing and invite an investigation because, under the its terms, it is likely that they will also be left out of pocket. As we will no doubt hear again in the spending review later this week, money is incredibly tight. Why would any public authority invite the Cabinet Office to undertake an investigation into fraud in its department, given that this would likely cost it money—something the Government have not denied and something they are unwilling to protect against? Amendment 23 seeks to understand this question further and is intended to provide the Government the opportunity to outline when they believe the Cabinet Office would seek to retain funds recovered on behalf of another public authority.

Can the Minister assure the Committee that if the money allocated to a public authority is retained by the Cabinet Office following a counterfraud investigation, this will not come at the detriment of any policies, programmes or schemes the authority in question was planning or already had in progress? Counterfraud investigations should deter fraud, combat wrongdoing and recover funds. If money has been allocated to a public authority, it seems both sensible and correct that any money recovered should be returned to the relevant authority and not siphoned off into the Cabinet Office.

I understand that Clause 10 states that agreement must be reached between the Cabinet Office and the relevant public authority before any money can be retained by the Minister. However, if a public authority has been subject to a counterfraud investigation, is the Minister certain it will have adequate agency in this discussion to make the case that it should have its money returned to it?

Let us imagine that a council has been subject to a counterfraud investigation by the PSFA. The money has been recovered; those responsible have been removed from office and have been subject to penalties under the terms of the Bill. There is no reason to suspect the council is at risk of being defrauded any further, but the reputational damage has been done. The council may even have lost money to the PSFA under the terms of the Bill, stretching its budgets even more tightly. The council is in a desperate situation, but it has done the right thing. The PSFA is asking to keep the money it has recovered.

Is the Minister certain that, in negotiating with the Cabinet Office over this question, a council in this state would have the capacity, resources and, crucially, agency and perceived legitimacy to do so? What are the reasons the Cabinet Office would give to justify why it needs this money? Would this be a conversation the council could expect to do well in or is this pretty much a done deal—the PSFA will keep keep the money it has recovered and the conversation would be more of a formality? Clarity on these questions now will help us and public authorities understand where they stand in these discussions and the extent to which the Cabinet Office will seek to augment its own budgets as a result of claiming funds originally allocated to public authorities.

In a similar vein, our Amendment 25 seeks to ensure greater oversight of the amounts that can be claimed by the Minister when undertaking their functions and exercising the powers provided for in the Bill. The Minister in the PSFA appears to be in a position to determine their own costs and to recover them under the powers outlined in Chapter 4 of the Bill. Our amendment seeks to incorporate greater oversight in this process, and to ensure that there is a check on the Minister’s powers to recover amounts, by introducing a role for a recognised judicial authority. Requiring a court or tribunal to award the reasonable costs incurred by the Minister will prevent the Minister charging potentially unreasonable costs without appropriate oversight. In our view, this is a sensible measure; we hope that noble Lords will support it and that the Government will adopt it as a sensible check on the power of the Minister under this part.

Our amendments in this group provide the Government an opportunity to address some questions that we have around where the money recovered from counterfraud investigations goes and whether the Government are confident that the discussion between public authorities and the Cabinet Office on this question will be a fair one that ultimately benefits the taxpayer. Furthermore, our Amendment 25 seeks to incorporate greater independent oversight over the amount of money that can be recovered as costs to the Minister to make sure both that this is proportionate and reflective and that there are safeguards on the power of the Minister; I hope that the Government will seek to incorporate it. I beg to move.

[Lord Palmer of Childs Hill (LD)]

My Lords, I see the first amendment in this group as a purely probing amendment to try to clarify matters; I trust and have every hope that, in the debates on the Bill, they will be clarified.

I ask the mover of Amendment 25 and the Minister to clarify something. I wonder about the change to the end of the amendment, which says

“awarded by a court or tribunal in relation to costs”.

I would have thought that that was covered already under Clause 13(2)(b)(i), which refers to

“costs that are awarded by a court or tribunal on or in relation to a claim for a recoverable amount”;

I agree with that. Then there is sub-paragraph (ii), which is about the Minister exercising their powers. Is that not covered by paragraph (b)(i) without adding it to (b)(ii)? This is a purely technical point because I think that it is there already.

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

Good afternoon, my Lords. I think that we are going to be as speedy as we were last week; the Chief Whip will continue to approve.

The amendments tabled by the noble Baroness, Lady Finn, and the noble Viscount, Lord Younger, would create additional burdens for the court system. They would also challenge the future viability of the PSFA and, therefore, its central mission of tackling public sector fraud.

Before I move on, I want to respond directly to a point made by the noble Baroness, Lady Finn. I believe that what is at stake and what is really being contested here is a matter of approach. As I said in Committee last week, being invited in to investigate by a government agency ensures a collaborative approach. We are hoping that, by working with government agencies rather than imposing ourselves on them—this is what we are learning through our current test-and-learn approach—the agencies will engage with us, meaning that we will be more likely to succeed in getting the evidence base that we need to determine the fraud.

On the specifics, the powers in the Bill let the PSFA investigate fraud against the public sector. A key rationale for this must be the deterrent effect. The PSFA must, therefore, be able to recover the money lost so that it can be used for public good and ultimately show fraudsters that their ill-gotten gains will not stay theirs for long. It is only reasonable that an element of costs recovery for the PSFA is part of this process. Amendment 23 would remove the ability of the PSFA potentially to charge for its services in future. The PSFA will act on behalf of other government departments, developing the expertise and capability required effectively to investigate fraud and recover the money lost. Providing the option to keep some of the recovered funds, subject to agreement with the public bodies concerned, will help fund the development of this expertise and will provide value for money for government and the taxpayer.

I reiterate this point to provide a level of clarity on the issue highlighted by the noble Baroness, Lady Finn. The PSFA would seek to recoup its costs and not necessarily to retain all the funds awarded. We will agree a portion with the public agency that we are acting on when the PSFA takes the case. That will be agreed in advance.

Amendment 25 limits how the PSFA can recoup reasonable costs incurred in exercising the Chapter 4 recovery powers, meaning that only a court or tribunal can award them. There is already scope in Clause 13 for courts and tribunals to award costs in relation to a claim brought by the PSFA, as highlighted by the noble Lord, Lord Palmer. However, this amendment would limit the operational flexibility of the PSFA and create extra burdens on the court system if we had to keep going back to the courts for all costs. A key aim of the Bill is to minimise the burden on the courts while ensuring that there are ample safeguards and protections in place. We already stipulate in the Bill that any costs charged have to be reasonable; we will be transparent about how we work out reasonable costs in our published guidance. However, we should always remember that investigating fraud and recovering losses is an expensive business for the Government. It is not fair that these costs are shouldered by law-abiding citizens. If you have committed fraud against the state, you should pay for this.

On how the PSFA wants to charge for its services, it is important that we recognise that, regarding money between departments and the impact on value for money, it is not uncommon for departments to charge each other for their services. The impact assessment sets out how the powers in the Bill will support the PSFA to recover up to £53.7 million over 10 years under current modelling. A significant proportion of this would otherwise have been lost to government. We create value for money by bringing funds lost to fraud or error back to government so that they can be used for public good. I hope that that explanation reassures the noble Baroness, Lady Finn, and that she will therefore not press her amendments.

--- Later in debate ---

I hope the Minister will agree to look at these modest amendments, which have serious intent to make the Bill fairer.

[Lord Palmer of Childs Hill (LD)]

My name appears on these amendments because I and my party are worried about powers being given to Ministers rather than to the courts. This puts the power in the courts because “the Minister” does not necessarily mean the Minister; someone quite low down in the Civil Service could make this decision. I think it is open to abuse.

I hope that when the Minister replies she can perhaps tell me how this fits in with a garnishee order on a bank. Garnishee orders have long been part of our legal system, whereby a debtor can collect money from the bank direct with an order from the court. I am amazed that we can have such a Bill here—I brought this up at an earlier meeting with the Minister—without “garnishee” appearing in it, because this is part of our current legal system. I invite the Minister and the mover of the amendment to incorporate that in their reply.

[Baroness Finn (Con)]

My Lords, the amendments proposed in this group by the noble Baroness, Lady Fox, and the noble Lord, Lord Palmer of Childs Hill, provide us with an opportunity to question the Government on the mechanisms they propose using to recover money. It is vital, as the noble Baroness said, that the powers provided for in this part are proportionate and sensible.

We are particularly interested in Amendment 29, which chimes closely with our belief that a reasonableness test should be incorporated as part of the exercise of powers. In this instance, the Minister must “reasonably believe” that a liable person holds an account with a bank before the bank can be served with an account information notice. We need to recognise that compliance with the provisions in the Bill, however proper and correct, will come at a cost to banks. This amendment seeks to impose a duty of due diligence on the Cabinet Office, which, as the party responsible for issuing the notices, should rightly be held to a high standard before it starts imposing responsibilities and costs on third parties.

As it stands, the Bill risks creating a situation in which the work that should really be done by the Cabinet Office is shifted over to banks. It is feasible that a civil servant in the PSFA, without the need to meet a reasonableness test, could send out information notices to dozens of banks and wait for them to come back to them to confirm whether or not the person in question does, in fact, have an account. I am sure that the Minister currently anticipates that civil servants will send out only a limited number of notices to the banks that they believe are relevant. However, it is not unrealistic to imagine that, during a busy period, someone in the Cabinet Office could be tempted to serve all the banks on their list with a notice and wait for them to revert, having done all the work. More importantly, there is nothing to prevent a civil servant from doing so. This is a serious point: it risks the workload being shifted from the Civil Service over to the private sector, burdening banks with non-profit-making tasks that they are legally obliged to undertake. The Cabinet Office’s civil servants must strive to reach the highest standards; the law should be clear on this point.

Amendment 62, also in the names of the noble Baroness, Lady Fox, and the noble Lord, Lord Palmer of Childs Hill, speaks to a principle that we have identified in our Amendment 55; namely, that a person against whom a deductions from earnings order has been served should not be held to an indefinite order if it has been suspended. The Bill, as it stands, would allow an order to be restarted at any point. For the liable person—and, in the case of orders against a joint account, for the other person with money in the account—this would create a great deal of stress and uncertainty. It also grants the Cabinet Office the ability to wield a great deal of power over the liable person, with few checks. The Cabinet Office should have the power to recover funds from the liable person that has engaged fraudulently, of course, but, in our submission, it should not have the power to threaten a liable person with a suspended deductions order for an unlimited period of time.

If it makes the decision to suspend an order, the Cabinet Office should be tied to a specific period of time in which it can restart the order. The Cabinet Office should be held to this standard, and the liable person should be protected adequately. We disagree with the noble Baroness, Lady Fox, and the noble Lord, Lord Palmer, that a suspended order should never be restarted, although we firmly agree on the principle that this power should be checked and should not be left open for an unlimited period of time.

I hope that the Government will consider these proposals as reasonable checks on the power of the PSFA in relation both to its ability to shift work over to third parties and to how it can wield these powers over liable people. We rightly expect the Cabinet Office to exercise these powers to a high standard. Ensuring that it does not outsource its workloads and that it concludes any checks or procedures within a certain time period are both proposals that speak to this high standard. I am sure that the Minister is confident that the officials in her department will meet these standards and, as such, that she will have no hesitancy in being able to back these proposals.

--- Later in debate ---

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, I am assured that it is in the Bill. I ask noble Lords to bear with; as soon as that has been passed to me, I will highlight exactly where in the Bill it is.

It is in Clause 12. That was like magic.

[Lord Palmer of Childs Hill (LD)]

Could the noble Baroness explain again why a garnishee order—the collection of debt from a third party—is not mentioned in the legislation at all?

[Baroness Anderson of Stoke-on-Trent (Lab)]

My Lords, a garnishee order is used to obtain money directly from a third party. That is not the process that we are undertaking; we are regaining money directly from an individual, as opposed to a third party. I am happy to write to the noble Lord with more guidance on that, but that is my understanding.

I move on to Amendment 29, which would necessitate a “reasonable belief”, rather than a “belief”, that a bank account is held by the liable person prior to the PSFA requesting bank statements from the bank to inform decisions on direct deduction orders. In practice, the PSFA will already be operating at this level as it will already, through the course of its fraud investigation, have developed an overview of the liable person’s financial information.

In addition, having thrilled the Committee with my recitations from Managing Public Money last Wednesday, I am excited to be able to quote from another government page turner, The Judge Over Your Shoulder. All “public law powers” must be exercised with

“reasonableness or rationality—following a proper reasoning process and so coming to a reasonable conclusion”.

Making a Minister’s belief a “reasonable” belief therefore has no effect, because they are already subject to it.

In addition, Clause 19 lets the PSFA issue a general information notice to banks, which provides confirmation of the accounts that a liable person holds. The amendment is therefore not adding anything new.

Amendment 62 seeks to remove the ability to restart a deduction from earnings order once it has been suspended. For some context, a deduction from earnings order is a mechanism by which public funds lost to fraud and error can be recovered directly from a liable person who is not in PAYE employment. Having listened to the debate, I have some sympathy with noble Lords; however, it is important that the PSFA remains able to issue, vary, suspend and restart, or revoke a deduction from earnings order, for very human reasons.

We need to be able to suspend and restart a deduction from earnings order due to a temporary change in the liable person’s circumstances; for example, if they were temporarily hospitalised. People’s lives, as we know, can be messy; it is important that we have the flexibility to recognise that. Where it is more appropriate to revoke the order altogether, this is provided for in Clause 47.

The purpose of the amendment therefore overlaps with existing provision which gives the necessary flexibility while maintaining clear communication with both employers and liable persons, maintaining a fair and transparent debt recovery process. If this provision was adopted, an unfortunate consequence would be the end of such flexibility and the reluctance of anyone to suspend payments due to having to restart the process.

I hope that this explanation reassures noble Lords and that the noble Baroness will withdraw Amendment 27.

--- Later in debate ---

[Lord Vaux of Harrowden (CB)]

My Lords, I will say very briefly that I support the concept, at least, behind these amendments. It cannot be right that the Minister marks his own homework. The noble Lord, Lord Verdirame, talked about what it says in the guidance notes. I do not know whether this is the right mechanism but, at the very least, if a review is to be carried out by the department, it must be by somebody who was not at all involved in the original decision and is not answerable to anybody directly involved in the decision-making process. That needs to be set in stone somewhere, not just in guidance notes or whatever that can be changed at a whim by any future Government. This is one of the weaknesses throughout this. We have lots of safeguards, but they are all in codes of conduct, future statutory instruments or whatever; they are not set in stone in the law and therefore are not strong safeguards. That is a general thought.

I have a feeling that I know what the answer will be: if they do not like the outcome of the review, they can go to the First-tier Tribunal. But that is a big leap from going back and saying, “Can we have an independent review?”. A First-tier Tribunal is, effectively, a full legal process. We need something that works and in which people can have confidence at the first level, before needing to take it to the much more legalistic, costly and complicated process of the First-tier Tribunal. I think the Minister will say that that is the answer, but I am not sure that I agree.

[Lord Palmer of Childs Hill (LD)]

This is a popular set of amendments. I agree entirely that there should be an independent review. That is something that somehow has to be in the Bill. What worries me about the noble Baroness’s amendments is that they talk about an “independent person”. Those are the words in the amendment. An independent person is somewhat different from an independent review. I can see a wonderful job opportunity in having panels of independent persons who could be available to be appointed.

During the debate on this Bill, one has somehow to put flesh on the concept of an independent review, how it is set up and how people can make their complaints. One of the real problems of modern life is that, if you want to make a complaint, you have to be able to do it on a computer and use IT. Is there going to be a process whereby you do this in a letter form in some way or another? These amendments, in seeking to put right the lack of an independent review, latch on too closely to the concept of an independent person, which in my view is completely different.