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Social Security Fraud Bill Hl

Volume 620: debated on Tuesday 16 January 2001

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3.13 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security
(Baroness Hollis of Heigham)

My Lords, I beg to move that this Bill be now read a second time.

We spend over £100 billion each year on social security. It is our duty to make sure that the system is secure from both fraud and error so that the right money goes to the right people. This duty is reflected in the department's Public Service Agreement, which includes a challenging objective to reduce losses from fraud and error in income support and jobseeker's allowance by 25 per cent by 2004 and by 50 per cent by 2006.

Social security fraud costs at least £2 billion a year—and probably far more. To put that in perspective, I can tell the House that this year we plan to spend £1.7 billion on running the entire Benefits Agency. This level of loss is clearly unacceptable and we are determined to stem the flow. The vast majority of people who claim benefit are honest and it is unfair on both them and the taxpayers who foot the bill that a minority is cheating the benefit system.

A wide variety of frauds are perpetrated against the benefit system ranging from the opportunistic—such as the person who does not tell the Job Centre that he or she has started work—to the highly organised criminal gangs involved in counterfeiting or stealing instruments of payment and running false identity frauds. In just one investigation into the counterfeiting of giro cheques over 50 people have been arrested. Another investigation revealed that a gang had hijacked the identities of 171 people from the Irish Republic. The ring leaders received prison sentences of between three-and-a-half and four years. The fact that one of the gang was also sentenced for possessing a firearm shows that we are not up against amateurs but hardened criminals. Indeed, the latest report by the National Criminal Intelligence Service, whose role it is to assess the threat posed by organised crime, puts benefit fraud, along with drug trafficking, in the high impact category of criminal activities.

The report makes the point that organised crime exploits many illicit markets. Something like 17 per cent of the gangs involved in drug trafficking are also involved in benefit fraud. The two activities may, in some instances, be inextricably linked with the proceeds of benefit fraud going towards the ever larger wholesale purchases of drugs. Along with benefit fraud, the list of other activities such gangs are involved in makes chilling reading. I shall not go through it in its entirety, but it includes arms dealing, extortion, kidnapping, prostitution and child pornography.

I mention those facts not to be sensational, but to make the very serious point that every time we catch one of the gangs involved in benefit fraud and its members end up behind bars we are often putting a stop to a wide range of other serious criminal activities.

The system that we inherited in 1997 had four key weaknesses. Prior to 1995 there was no measurement of the amount of fraud in the system, so the scale of the problem was not understood. That meant that there was no overall strategy for safeguarding the system and, therefore, no meaningful targets which, in turn, meant that there was no objective measure of success. Secondly, the amount of fraud detected was the only measure of success. As a result, those paying benefits had the perverse incentive not to worry about preventing fraud because the more that entered the system the easier it was to find it and be rewarded for having found it.

The third weakness was inadequate investment in information technology, resulting in a failure to draw together all the information held on an individual's claims so as to guard against fraud and avoid error. For example, a local authority worker processing a claim for housing benefit did not have automatic access to details of an existing or previous award of income support. Finally, the fourth weakness was a culture throughout the organisation that too often regarded security as a bolt-on extra rather than an integral part of the everyday running of the social security system. There was not enough focus on delivery at the front end; for example, in 1997 two out of five income support claims were paid without enough evidence.

We are determined to secure the system from fraud and error. This is a huge task but we have made a good start. We set out our strategy in Safeguarding Social Security, published March 1999. For the first time we have a plan to secure the system from the first claim to the final payment. We have established a system that provides continuous measurement of levels of fraud and error in income support and jobseeker's allowance. For the first time, we have set a tough target for reducing the amount of fraud and error in the system so that people can judge our success for themselves. As I said, we seek to eradicate fraud and error in income support and jobseeker's allowance by 25 per cent by March 2004 and by half by March 2006. Those are tough, challenging targets.

The National Audit Office supports the approach of setting targets for reducing fraud and error based on regular measurement. We have introduced tighter checks at the gateway to income support before money is paid out, and have already halved the number of income support claims that were paid without enough supporting evidence. That will save over £1 billion during the course of this Parliament.

Putting the system right will take time, but we are already seeing results from the new approach. Figures released at the end of November for benefit paid between April 1999 and March 2000 showed that losses from fraud and error in income support and jobseeker's allowance had dropped by 6.5 per cent. More than 20,000 people were sanctioned or prosecuted in 1999–2000, which represented an increase of nearly 60 per cent on the previous year.

Specialist identity checks, which have been piloted in the Balham area since June 1997 (where there have been over 200 arrests), will operate across the country this year. Cross-checking DSS records and other state records has already saved over £150 million. We have introduced stronger powers to inspect employers' records to check on people who are working while claiming benefit as unemployed which we shall start using this year. Through tighter checks, targeted plans and better use of information we are continuing to turn the corner in the battle against fraud. But more needs to be done if we are to meet those challenging targets.

We need to make better use of IT. As a result of the Spending Review 2000, we have secured almost £2 billion for modernising our services. One of those aims is significantly to reduce fraud and error. We currently have the ability to check what claimants tell us with information held by other parts of government. We need to extend this to allow us to check information with new sources. We need to create a strong deterrent for people who are persistently fraudulent.

My noble friend Lord Grabiner, who will speak later this afternoon, was asked in November 1999 to investigate the informal economy. His report was published in March 2000 and it contained a series of recommendations to combat benefit fraud. This Bill carries forward the Government's commitment to combating benefit fraud by turning many of those recommendations into action.

Before turning to the detail of the Bill's proposals, and in case any noble Lords believe that we are talking about ignorance rather than fraud and about the kind of thing that anyone might stumble into and that therefore the DSS response is disproportionate—that is a view that I can understand noble Lords may hold—I wish to give a flavour of the kind of situations we are dealing with on a day-to-day basis.

Fraud takes place when people knowingly lie—I am not talking about accidental error—about their circumstances in order to gain benefit. The main types of fraud include someone who is working but not declaring earnings (including those of a partner). I give the example of a couple who had acquired sufficient funds through working and claiming to build themselves a brand new house. The man claimed he was sick and disabled and his wife received invalid care allowance for looking after him. It transpired that although she was caring for an invalid it was not her husband who was in work. She was in fact working at the local nursing home.

In another investigation, in an attempt to avoid detection, a man set up business as an IT consultant in a town nearly 40 miles away and by pretending to be homeless managed to obtain a local authority flat there. Meanwhile his wife and family stayed in the family home for which he was receiving mortgage assistance along with jobseeker's allowance.

The National Audit Commission has discovered a case of a local authority employee who worked for one local authority while on long-term sick leave from another. This is not a case of innocent error; it is deliberate and knowing fraud. We estimate that this type of error and fraud in income support and jobseeker's allowance costs at least £350 million a year.

A second example of this type of fraud concerns undeclared capital. In one case an income support claimant had failed to tell the department that she had received a large sum by way of damages following an accident. She claimed to have received only £4,000. In fact the true amount was well into six figures and had been invested for growth on the advice of a financial consultant who stated in his letter,
"since you do not need the additional income from this capital as your current sources of income by way of your benefits adequately cover your normal living expenses".
We estimate that this type of fraud costs £34 million each year.

Further, there is undeclared income from other sources. I refer to a man who claimed income support but failed to declare that he was receiving an army pension. He was overpaid by £4,000. We estimate that this type of fraud costs £36 million a year.

I refer to family circumstances where people fail to tell us that someone is living with them. It may be hard to establish that because even if a partner is discovered living with them, and they have not declared that partner in terms of their income support claims, the standard response may well be that that person moved in the day before. However, I have come across other family circumstances in the Audit Commission's report. A widow received a pension of £3,000 a year and she died in 1988. Before her death her son had power of attorney over her affairs and continued for 10 years after her death to draw her pension. He also submitted three fraudulent life certificates and obtained £30,000. He went to prison for 15 months.

In another case on the positive side, if I may put it that way, the Contributions Agency recorded a widow as dead even though she received a work's pension and was alive and well but did not receive the DSS pension. In that case we were happy to ensure that she received £40,000 in back payments as a result of data matching.

I refer to residency fraud which involves a person claiming to be living at an address when they are actually living elsewhere. Further, there is identity fraud. The registrar's office referred a case after an application for three "dead" birth certificates from one address. Following investigation five non-UK citizens were prosecuted and convicted. They admitted using false identities. The loss was £42,000.

On top of that we have housing benefit fraud which costs us something like—

My Lords, on the question of identity fraud, I tabled a Question a few months ago asking whether former senior members of MI5 were being brought in to help detect fraud. Will the noble Baroness confirm that that is still the situation? Is MI5 itself now being brought in?

My Lords, it is certainly the case that we have been using specialist advice from MI5 to train our own professional investigators. However, as the noble Lord will understand, at the end of the day, the investigation has to be carried out by people who know the social security rules and some of the techniques for evasion.

I return to housing benefit fraud where we are losing through local authorities something like £600 million a year of taxpayers' money. The Audit Commission reported a case where someone who worked for a local authority for a number of years claimed income support and housing benefit from an adjacent authority. That resulted in an overpayment of £50,000. Further investigation revealed tenancy fraud as the person was no longer living in the council house for which he received rebate, leaving an unauthorised tenant in occupation. The unauthorised tenant was also committing housing benefit fraud. So it goes on. Fraud corrupts the system. I repeat that we are not talking about the innocent, the ignorant, the illiterate or people who have difficulty with languages stumbling into error. In all of the cases I have mentioned we are talking about knowing and deliberate fraud in which people are working and claiming or have undeclared capital or income which they knowingly and wilfully refuse to declare. This is for the most part, or can be, organised, continuous and systematic fraud that corrupts the system and destroys people's confidence in the integrity of our welfare state.

We estimate that the amount lost to fraud—the figure bears repetition—is at least £2 billion. I hope that I have demonstrated that this fraud is not small time and is not a victimless crime. It is often planned, calculated and costly. It can be widespread and pervasive and it can corrupt. No one in this House would argue that the kind of fraud that I have mentioned would and should be tolerated. However, to cut fraud, we must have the means to do so; hence the Bill.

For every fraud case that we end—the cases I have mentioned are the fraud cases that have come to light and which we have been able to follow up—there are half a dozen others where we lack the powers to determine that fraud has occurred because we lack the powers to collect the appropriate information.

I give just one example of highly likely fraud which we could not determine because we lack the powers until—I hope with your Lordships' consent—this Bill becomes law. We suspected that a claimant was working in the building industry, as he had done frequently in the past. But despite numerous visits scattered between 8.30 in the morning and five o'clock at night, he was never at home. When we finally caught up with him he said that he was vaguely looking for work but could not account for the fact that he was not in on the occasion of a dozen or so visits. No information was given to us as to where he had been that we could check. When we asked to see his bank statements, we saw that there were regular and substantial cheques deposited which the claimant said were there because he was doing a favour for a friend who did not have a bank account. When we asked, however, if he would allow us to check with his bank to confirm the story—if it were true, there should be no problem in checking—he refused. Had we had the powers under the Bill, we might have been able to stop what I think most of us would be pretty sure was fraud. As it was, we could do nothing and he went on his merry way.

The powers we seek in this Bill help us to reduce that loss through prevention and earlier detection, using the powers to acquire data from the private sector and to secure deterrence, through the powers to remove benefit from persistent benefit offenders and the swift, effective punishment of collusive employers.

Turning now to measures proposed by this Bill, one of the key recommendations in the report of my noble friend Lord Grabiner on the informal economy was a power to take benefits away from people who persistently abused the benefit system. For the vast majority of benefit cheats, their first conviction is their last because the whole process of being interviewed under caution, appearing in court, being sentenced and perhaps finding themselves in their local paper is salutary. However, there are some who continue to offend. They must be made to realise that they cannot abuse the benefit system with impunity.

This Bill provides that those convicted of benefit fraud by the courts will be warned that a further conviction by the courts within three years would mean that they could lose benefits for a period of 13 weeks. This would happen when they defraud virtually any social security benefit. These are known as disqualifying benefits. But the sanction itself will apply to a smaller range, the sanctionable benefits. We will not apply the sanction to benefits which are specifically for children (child benefit and guardian's allowance) nor to those which meet the extra costs of disability (DLA or attendance allowance). Nor will we sanction retirement pension, as research has shown this benefit to be virtually free of fraud by retirement pensioners.

The measures are intended to be tough but, as with other sanctions in the social security system, they include fall-back provisions, and rightly so, to protect the vulnerable and those dependent on them, in particular the families of those who rely on income-related benefits. They will be able to apply for help under a hardship scheme if their other resources are insufficient to prevent hardship. They will be paid at a rate which reduces the offender's personal allowance by 40 per cent—or 20 per cent for cases of particular risk; for example, where a member of the household is seriously ill. Benefit levels for the rest of the household would be unaffected. For people on income support, access to such a scheme would be automatic. Housing benefit would remain in payment, as would access to other benefits such as milk tokens and free school meals.

The scheme is a close reflection of the hardship scheme which already operates for labour market sanctions, which has been tried and tested. We believe this scheme is fair, in that it strikes the right balance between, on the one hand, a punishment which brings home the point that fraud will not be tolerated, and on the other, ensures that offenders, and their families in particular, do not suffer unduly.

I should stress that the main aim of this measure is deterrence. We do not want to see it applied to large numbers of people; indeed, quite the reverse. The fewer people who are subject to the sanction, the better because that means it is working.

Over and beyond the deterrent sentence, a second key to cracking benefit fraud identified by my noble friend's report is the need for access to independent information about a claimant's financial and other circumstances. Fraud is committed by people deliberately telling lies or concealing the facts about their circumstances. If we are to succeed in rooting fraud out of the system, we need to be able to check with third parties what people tell us. I referred to the man who said that the money in his bank account was there on behalf of a friend. We could not check that out. If we suspect that a person is claiming benefit and is concealing his earnings from work, cross-checking that information with banks would help to establish the fraud.

The Bill includes measures to allow authorised officers in the DSS and local authorities to require information from specified private and public sector organisations, including banks, building societies and credit reference agencies where we have reasonable grounds. It does not provide powers to pry carte blanche into people's bank accounts and go on fishing trips. The Bill is clear on this point, and the point will also be made clearly in a publicly available code of practice—discussions on that begin next week—which will set out how the powers will be used for all to see.

I should like to make clear to your Lordships what is meant by the phrase "reasonable grounds for suspicion"; otherwise I imagine that noble Lords will seek to press me on that. First, it is important to say that what constitutes reasonable grounds will vary and it is not appropriate to put specific conditions into legislation. But there would be reasonable grounds for suspicion where there were cogent reasons to believe that a person was receiving or claiming benefit fraudulently. Staff authorised to use these powers will need to analyse and record their grounds for the suspicion and they will always consider whether there could be an innocent explanation for any circumstances. We might take into account tip-offs from members of the public, suspicious behaviour on the part of a claimant, or unsatisfactory identity documents.

Objective statistical evidence that a person was disproportionately likely to be fraudulent would also provide reasonable grounds. We know that people who have committed benefit fraud before are more likely to be fraudulent. I stress that the evidence would need to be objective and that it would not be lawful to use these powers to discriminate on grounds such as race or sex.

I appreciate that some of your Lordships may have concerns on the extent to which these new powers would give the department access to what in the normal course of events is confidential information. These powers would not be unique in Europe—indeed, Sweden has wider powers in its legislation. Many other countries do not have the same difficulty because they have national ID cards. One of our difficulties is precisely because we do not.

The department estimates that it loses up to a quarter of a billion pounds each year through housing benefit being paid on empty properties. In some cases this will be a calculated fraud in that the address is being used to support a claim, for example, to income support or jobseeker's allowance under a false identity—known in the trade as a "giro drop"; in other words, the fraud is committed by the landlord who does not tell the local authority that the tenant has moved out but continues to collect the giro. In other instances the tenant simply abandons the property without bothering to tell the landlord or local authority. For that kind of fraud, it will help us if we can obtain information from the utility companies about abnormal levels of consumption which may indicate benefit fraud. If, for example, there is no consumption but the giro cheque is being sent out, one could have reasonable grounds for believing that the house is unoccupied and, therefore, that the person has no right to a housing benefit giro.

The social security system is also subject to attack from overseas where people fraudulently claim benefit in more than one country at a time or use false, borrowed or stolen foreign identities to claim benefit fraudulently in the UK. I gave an example earlier of 171 identities hijacked by one gang. In order to combat the growth of transnational benefit fraud, we need to have more routine exchange of information with overseas social security administrations. That will be of mutual assistance. Those powers in the Bill would allow the DSS to supply information to other countries and, where another country had a similar power, would allow exchange back to us. We would establish arrangements to exchange information with other countries only where we are content that the country in question has adequate safeguards in place against the improper use of any information disclosed.

As I have said, people working and claiming benefit—including housing benefit—to which they are not entitled cost the department, we estimate, up to half a billion pounds a year. We have looked beyond the problem itself to one of its major facilitators: too often employers are more than happy to have the state subsidise their wage and national insurance bills by colluding with their employees in committing this type of benefit fraud. They are taking advantage of their workforce by denying them proper terms of employment and they gain unfair advantage in the market place by paying low wages. This is unfair competition against honest employers.

The prosecution of employers who have colluded in benefit fraud can be lengthy and costly and is not always the most effective way of tackling this problem. Obviously we will continue to prosecute the more serious cases, but for the less serious cases the Bill for the first time allows the application of a swift civil penalty that will bring home the message that operating in the informal economy by the employer carries a high price and will not be tolerated. The Bill will strengthen our ability to reach out to employers who collude with employees in such fraud.

The measures provide that an administrative penalty of between £1,000 and £5,000 would be offered to a colluding employer as an alternative to prosecution. The penalty would be subject to the same safeguards as currently apply to administrative penalties for claimants. The employer will have the option of having the court decide the case; if an employer accepts the penalty as an alternative to going to court, he will have up to 28 days to change his mind but he may prefer the fine to the court prosecution; and it would be quicker and more efficacious from the department's point of view.

A great deal of fraud, estimated as up to 70 per cent, occurs not at the start of a claim but afterwards when changes of circumstance—the claimant has gone back to work or "repartnered"—which affect benefit entitlement go unreported. Current legislation fails to impose a watertight duty on claimants to report changes and is therefore inadequate. We are reforming those powers to ensure that they are effective, and to make it clear that there is a duty on the part of claimants to report such major changes of circumstance.

Finally, the Bill contains three tidying-up measures. First, it will clarify the legislation which enables prosecution when claimants deliberately fail to report changes of circumstance. Secondly, it enables the DSS and local authorities to act together in offering administrative penalties in place of prosecution in cases involving housing benefit and council tax benefit as well as a DSS administered benefit. Thirdly, the Bill will strengthen arrangements for the supply of information by local authorities to the DSS by specifying in directions rather than regulations what information is required from local authorities. It will also bring Scottish legislation on the timing of prosecutions into line with that for England and Wales.

Those are important measures. They are not directed against the innocent, the erroneous or people who could reasonably not have understood that some change in their circumstances makes them open to fraud. We are talking about serious, persistent, knowing, collusive fraud, so certified by magistrates in court. If such a person repeats the offence after that, the benefit penalty will kick in.

I am sure that your Lordships agree that it is not unreasonable that someone who defrauds the system not just once, but twice, as established by law, should not continue to receive benefit. I therefore hope for the support of your Lordships.

My Lords, before my noble friend sits down, I wonder whether she will excuse my ignorance, if ignorance it be, but are the documents that a person is required to sign before benefit is granted, giving details of their assets, their income and other vital information, made subject to a declaration under the Statutory Declarations Act 1835? If they are, a charge of perjury is also relevant. That would also be a deterrent for people who may be wobbling on the edge of doing something fraudulent and may persuade them that the penalties are much too serious.

My Lords, applicants certainly have to sign documents testifying that the information that they have given is correct. I shall ask my officials whether we can strengthen the point that my noble friend has suggested. If people sign a document that they know to be incorrect, they may risk a charge of perjury. It would be useful to strengthen the provisions to discourage people back to the side of virtue.

My Lords, following on from that, would not the statutory declaration have to be made in front of a solicitor? That is inconceivable for most applications. We are talking about fraud, but not perjury.

My Lords, that may well be the case, but at the moment an applicant has to sign the documents stating that the information given is correct. In that sense they can be said to have given false information if it is not correct. One of our difficulties is that when people do so, we have no definable offence with which to charge them.

Moved, That the Bill be now read a second time.—(Baroness Hollis of Heigham.)

3.43 p.m.

My Lords, in 1997, the Labour Party manifesto promised tough action to combat benefit fraud. In 1998, those objectives were repeated in a Green Paper on welfare. In 1999, the Government launched a formal strategy for tackling the problem and in July 2000 more consultative documents were issued. In all, more than 40 statements have been made on the subject since the Government came to office. In the meantime, a large and important problem that the Government should tackle has remained.

As the Minister has pointed out, it is difficult to estimate the size of the problem. The Government's estimated cost to the taxpayer of £2 billion a year is probably the minimum. The figure may be as high as £7 billion. It is clearly a major problem.

With their repeated statements but little action, the Government have failed to make effective use of the considerable powers that they already have. One has only to look at the report of the Public Accounts Committee on housing benefit fraud to see that. One official from the Department of Social Security said that only 700 out of 200,000 detected cases were successfully prosecuted. I understand that the housing benefit form used by local authorities has never been standardised. There must be one version that would be best for all. Many issues have not been effectively pursued. I shall come to a much more important example in a moment.

We are anxious that effective action should be taken. The timing of the Bill may be unfortunate in two respects. It is true that the consultative exercise was on the measures that the Bill now contains, but the wording of the Bill was published only on 18th December and we are debating it on the second day back after the Recess. It has been difficult for outside organisations to respond on the details. I am still receiving representations and no doubt will continue to do so for some days to come.

There is also a timing problem because of the speculation that there is likely to be a general election in April or May. Even if the election is on a longer time-scale, we shall be up against time pressures. That puts a heavy responsibility on your Lordships. If Parliament is curtailed, there may be very little time for another place to consider the matter, in which case the Government may then use their massive majority to force the Bill through on a guillotine. We have a difficult task ahead of us to consider the details of the Bill.

While we understand and support the objective of the Bill, we share the considerable reservations that some outside bodies have expressed on a number of important aspects relating to human rights, the effect on the Data Protection Acts, the burden on business, the costs and efficiency of the operation and the sanctions and penalties to which the Minister referred at the end of her speech. We shall need to examine all those issues in great detail in Committee and at subsequent stages.

We have been helped by two important reports. The Scampion report was set up by the Government and published in February 2000. The other report was produced by the noble Lord, Lord Grabiner, whom I am glad to see in his place. The Minister referred to the noble Lord's report, but not to the Scampion report. The only comment that I can find on the Government's attitude to its recommendations is a response by Mr Rooker in another place to a parliamentary Question by Mr Willetts. The Answer says that the Government will strengthen the central organised fraud investigation service. Am I right in thinking that that means that the Government are setting up a single benefits investigation agency combining the present Benefits Agency security investigative service and the benefits fraud investigative service? It would also be helpful to know whether any of the other proposals in the Scampion report that the Government propose to accept require legislation. If so, it would be convenient to incorporate them in the Bill rather than wait for another occasion.

The report by the noble Lord, Lord Grabiner, was very cogent and, in some ways, easy to read, given the subject matter. If I may presume to say so, it was a very elegant report. That is not to say that I agree with everything in it. Personally, I am a little less dismissive of the idea of an amnesty, which he considered and dismissed. The Government have resorted to amnesties in various ways in Northern Ireland and there was also a national amnesty for firearms. As the noble Lord's report says, we need to get people out of the informal, illegal economy and into the legitimate economy. An amnesty may be one way of securing a rapid improvement among people who have drifted into fraud one way or another, perhaps by continuing to draw the same benefit after they start living with someone else. As I say, it is a personal view, but I believe that we should perhaps give the matter a little more consideration.

In his report the noble Lord makes a number of important recommendations. By and large the Government have accepted them and incorporated them in the Bill. I shall turn to the details in a moment. However, I want to query whether the existing measures are being used efficiently. In his report, the noble Lord, Lord Grabiner, quotes a figure which suggests that for every pound expended on trying to deal with benefit fraud, the return may be £1.20. He says that one must place that against the priorities of the Government. With regard to other questions of fraud in relation to large business, the return may be as high as £1.57 for every pound expended.

Leaving the law on one side and turning to economics, it is a well established principle that if one wants to maximise one's returns, one carries out an activity until the margin of cost is equal to the margin of revenue. Apart from the provisions in this Bill, clearly that is not happening. The Government are simply not making available the resources which, as we understand it, will lead to a net gain to the Exchequer. Before we examine the further measures in the Bill, I believe that we need to consider most carefully the noble Lord's suggestion that the Government should concentrate on big business rather than the minor frauds with which the Bill deals primarily. As I said, we have misgivings and I believe that outside bodies have also expressed misgivings about the proposals.

The Government placed in the Library a summary of the responses to their consultative document on these issues, which reflected the noble Lord's report. Perhaps I may say that it is a very "summary" summary. It would have been—and still will be—extremely helpful for us to know the exact responses of those bodies, not least when we reach Committee stage, which I understand is to take place shortly. The noble Baroness raises her eyebrows. We shall leave it to the usual channels.

However, the point that I make is that the whole of the reports should be placed in the Library without delay. That will provide the basis for considering in Committee the considerable misgivings which have been expressed by a large number of outside bodies. Obviously, on this occasion I do not have time to go into great detail about the various representations which have been and, indeed, are being made. However, we need to know not the summary of the responses but the precise misgivings which outside bodies may have, particularly those affected by the various organisations mentioned in Clause 1.

Considerable concerns exist in relation to the human rights aspect of the matter and, indeed, in relation to the more narrow question of the way in which the Government effectively are knocking a large hole in the existing protections so far as concerns data protection. Effectively, the Government are providing cover for the various bodies set out in Clause 1, if I may express it that way, for revealing information, which, under existing law, they would not be entitled to do.

I believe that in particular concern has been expressed by the British Bankers' Association and others about the scope which the Bill now gives for fishing expeditions. Rather than genuinely believing that a particular individual or group of people is committing fraud, information will simply be obtained under a broadly based system. I believe that we shall need to consider the issue of such fishing expeditions and rule them out. Perhaps we shall need to make an amendment on the face of the Bill. The Minister said that a code of conduct is about to be produced. We should like to see it. However, as she well knows, a code of conduct is not the same as a provision written into the legislation.

Perhaps I may refer to one or two representations which have been received so far. I received one only this morning from the local authorities organisation. That body is concerned that the cost of operating the provisions of the Bill will fall on local authorities, whereas the benefit of stopping the fraud will go directly to the Exchequer. No doubt that is a point that we shall need to consider. I believe that the whole relationship between central government and local authorities in tackling this problem requires most careful review.

Perhaps I may also pick up on a point made by the National Association of Citizens Advice Bureaux. That organisation is concerned about confidentiality and has noted with pleasure the fact that it is not covered by the Bill. However, it is worried that that may become the case by statutory instrument subsequently. I believe that a clear assurance needs to be made on that point.

My Lords, I am most grateful for that rapid reply. As we well know, the citizens advice bureaux do a magnificent job in the field of social security and it would be sad if their activities were to be inhibited.

The banks are concerned about various aspects of the Bill; for example, in relation to the civil liberties of their customers. It is rather like the famous after-dinner joke of Lord Denning, who used to say that he once appeared before a judge and said that he represented a God-fearing limited liability company. I believe that when the banks say that they are concerned about their customers' civil liberties, that may be a little ultra mires.

There are other areas of concern; for example, in relation to credit agencies. I believe that it is not beyond the realms of possibility that if the Department of Social Security says to a credit agency, "We are suspicious about Mr Bloggs", that is unlikely to improve Mr Bloggs' future rating with the credit agency. A similar concern has been expressed by a group called CIFAS, which is anxious to be treated on a reciprocal basis: if it provides information to the Government, the Government should provide it with information. Again, that raises difficult questions and we begin to enter something of a minefield so far as concerns safeguards.

Leaving to one side the point that I have just made, I believe that the banks have a real cause for concern not only as regards the disclosure of information but also as regards the position of their staff; for example, where an individual may be held responsible for giving information wrongly or perhaps giving wrong information. The banks stress that they currently have safeguards in place which protect them. They are worried that they will no longer be protected as fully under this Bill as they might wish to be.

I turn to the question of the burden on business. Paragraph 187 of the Explanatory Notes—and, indeed, the regulatory impact memorandum—suggests that the annual cost to business will be between £2.5 million and £7.6 million. I am not clear whether that is the net cost after the reimbursement of costs for which provision is made in the Bill. Perhaps the Minister could confirm whether that cost is net or gross.

In any event, it issues rather strange that the organisations which may be reimbursed are not the same as those which appear in Clause 1. The clause which relates to reimbursement covers rather fewer organisations and it appears that some of the burden will fall on individual companies. The regulatory assessment states that the Government do not normally pay for costs which are imposed on business by statute. That may be so, but it does not make the costs any less so far as concerns business. That is, perhaps, yet another form of stealth tax. It may involve immediate costs and the general disruption of a business, if the Government make many applications about numerous individual cases or about collective cases, if that more organised form of fraud is committed.

Outside bodies have made the important point that the request for information should be centralised in the sense that they should not receive requests for information from half a dozen different government departments, such as the Inland Revenue, Customs and Excise and the Benefits Agency; requests should be made through only one route. Similarly, a request should be made only to a particular part of the organisation from which the information is requested. That would not permit an official from the relevant local authority who is concerned with housing benefit to go to a local bank and say, "I should like to know about Mr Bloggs". That would be dangerous in many ways.

I am rather concerned about the extent to which the information will be available in a wider field. We know that such matters are not necessarily water-tight. The regulatory assessment suggests that one might state, "We might just ask for a copy of your latest bank statement". I should not be happy if my bank statement were to start floating around a local authority office. We need to consider the serious issues of security that are raised. From the point of view of the government department and the individual organisation of which information is asked, there appears to be a strong case for centralising the request for information. We need a one-channel system if we are to deal with the matter effectively.

I am conscious of the time and of the fact that other noble Lords wish to speak. In her closing remarks, the Minister discussed the question of penalties. Those of us who were involved with the passage of the Child Support, Pensions and Social Security Act 2000 and with previous relevant legislation know that several problems are associated with the withdrawal of benefit. That involves the so-called Windlesham amendment. The Minister is clearly sensitive to that issue, as are Members on the Liberal Benches and on these Benches. Clearly, the Government have gone to considerable lengths to safeguard their position. For example, they said that if the penalty involved reducing income support to only 10p a week, the relevant sum would not fall below that. That means that the related passported benefits would not also be withdrawn—that would be a draconian step. On the other hand, the more that one softens the benefit penalties in the manner prescribed in the Bill, the less effective those penalties are likely to be. A balance needs to be struck, and we shall consider it when we come to the Committee stage.

This is an important Bill. I believe that all noble Lords share its objective, but it has to be viewed in a wider context. Much more can be done outside the Bill, in terms of tackling benefit fraud. Too little has been done until now, and more must be done. We must also ensure that the Bill's balance between achieving its objective and avoiding the dangers that are implicit in several of its proposals are carefully considered. I am sure that we shall do that when we come to the Bill's later stages.

4.3 p.m.

My Lords, perhaps I may first congratulate the Minister on her opening speech. She spoke with great balance, discretion and care.

The points that the Minister made through her examples are well taken. I accept that, although error and fraud may be confused at the margins, we are dealing with a considerable quantity of real fraud involving malice aforethought. I have encountered most of the types of fraud that she described. Through our business in the House, I have read or heard about many cases. I have also come across one or two examples that are rather worse than any that she mentioned. I recently heard of someone who was using social security fraud to raise capital to run his business as a drug dealer. That is worse than anything that the Minister mentioned.

The problem is not particularly new. I know of the case of a half-pay captain who retired on half pay in 1709. The pension remained in payment until 1812. It is possible that that was not fraudulent, but I find it exceedingly improbable. On the other hand, I am rather sceptical about any attempt to estimate the amount of fraud. I have not forgotten Lord Boyd-Carpenter asking the then Minister, the noble Viscount, Lord Astor, how the government can know the amount of undetected fraud. I have not heard an answer to that question, and I do not expect to.

Clearly, something has to be done about the problem, which is a crime and a sin. We are all against it, and we all want to see the problem reduced. All fraud is committed at someone else's expense. However, a balance needs to be struck. We want to fight fraud, to preserve confidentiality and to secure the delivery of benefit to those in need as fast as possible. Those are three good objectives, but we must admit that they are capable of conflicting with one another. When they do, striking a balance is a delicate and sometimes rather difficult operation.

The Minister will be aware that I have a growing reservation about the usefulness of single-purpose Bills. When we consider such Bills, it is extremely easy for the single purpose to become the only matter that is in our minds. The striking of the balance is therefore addressed with a great deal less care than it would be in a Bill that reformed the law on social security in general.

I was a great deal more sympathetic to the Bill before I read it in detail. It addresses real problems but, in practice, it creates many difficulties. On the code of practice, incidentally, to which the noble Lord, Lord Higgins, referred, it would be of material assistance to us if the code could be made available to us before we go into Committee. That would save us a good deal of time.

I thank the Minister and her office for the memorandum I received this morning addressing the way in which the Bill was drafted. It interpolated the Bill and related it to 2,000 amendments to the Social Security Administration Act 1992. That was most welcome and most appreciated. However, those in the world at large who have to construe the Bill will not have the benefit of advice from the Minister's private office explaining how that should be done. We should think about the difficulties we create by such an acrostic method of legislation.

We should consider the many questions that are raised by the use of such powers. First, we should consider to whom the information is to be made available. Misgivings have been expressed about how widely disseminated within the Department of Social Security the information will be. Clearly, the more widely disseminated it is, the more risk there will be of its spreading outside its proper circle and being used for something other than its proper purposes. That relates again to the question of the purpose for which the information can be used.

In common with other noble Lords, I have recently been reading obituaries of the late George Carman. The name of Gillian Taylforth comes to mind. She supplied information in good faith, as by law bound, to the police but found that information on the front page of the Sun. I remember a case during the previous Parliament of a Member of Parliament who was found unconscious and drunk in Great Smith Street. The police took no action and laid no charges, but details of the episode were found in the pages of the Daily Mail. Clearly, there is always the possibility of information, especially if it is scandalous, being disseminated in quarters and for purposes for which it was not designed. I should be happier if there were a reservation in the Bill banning the use of the information for purposes other than that of fighting benefit fraud.

On what grounds will the information be required, and of whom? I have no objection to the phrase, "reasonable ground for suspicion", and take the Minister's points on that. But when we look at page 2 of the Bill, the question arises, suspicion of what? That needs a little more thought than has so far been given to the matter. If we look at what will be new subsection (2C) on page 2, we see that it says that information may be required if there are reasonable grounds for suspicion that,
"a person … has contravened, is contravening or is likely to contravene provisions of the relevant legislation [or] … has committed, is committing or is likely to commit a benefit offence".
That reminds me of my old childhood example of the children before a juvenile court who were prosecuted for loitering with intent to press button B. The magistrates very properly threw it out. We cannot get the proof of something that is in the future. The criminal law is not in the business of weather forecasting, and as soon as it goes into it, it becomes as unreliable as the weather forecasts are already. That is no fault of the weather forecasters; we live in an unpredictable climate, politically as well as meteorologically.

But what worries me most is paragraph (c) of the new subsection. Information may be required of,
"a person belonging to any description of persons who are more likely than others to fall within paragraph (a) or (b) above".
I heard the Minister say that that cannot be used on grounds of race or gender. She is correct and I am glad she said that. But I imagine the Minister will agree that, though it is illegal so to use it, there is little doubt that it will be so used in practice. Those doing it may be unaware that they are doing it, which is part of the problem of institutional racism, or will dress it up so that it does not appear that they are so doing. It happens in all quarters. As I heard Commander Grieve admitting on "Newsnight" last night—he is a man whom I would treat as an extremely good, reliable and responsible source—it would not be illegal to use that paragraph on grounds, for example, of sexual orientation.

The Minister mentioned previous offences. But that offends the basic common law principle of presumption of innocence. If we go after people because they have committed previous offences, we get into the area of hunting people because of what they have done in the past, and there is then the real danger of a vendetta. I hope that the Minister will think for herself and take that out voluntarily before I have to table an amendment on it. She has a great deal of sense; I think she may.

Liberty raised the question of compatibility with the European Convention on Human Rights. I am not a lawyer. I shall not give a verdict on that. But it appears to me to be the case that under Article 8.2 of the convention, the question to be addressed is whether the remedy is proportional to the mischief. It seems to me possible that the greater the degree of safeguards in the Bill, the greater the likelihood that the court will find that the remedy should be proportional to the problem. That is an amateur opinion. The Minister will no doubt be able to obtain expert advice, from behind her as well as from other quarters, and I shall listen to that with interest.

Again, the question arises as to who may be added to the list of those from whom information may be required. Under subsection (3) on page 3, we see that "any person" may be added. That is a little sweeping. I heard the Minister's reassurance about the CAB and was extremely grateful for it. But the Minister must realise that, like the Pope, she cannot bind her successors. Any future Minister in her position may well give a different answer. That is the trouble with leaving unexploded vires lying about in statutes. As far as I can see, that provision could perfectly well be used if a paper ran a story on social security fraud—as papers do from time to time—to require an editor to reveal his sources. If that is not so, I shall be extremely grateful to be told that it is not; and to be told why it is not. The question may be worth pursuing.

Some practical points arise from the Bill. It has been alleged in the press that the Data Protection Registrar has misgivings about this Bill. I shall be glad to know whether that is actually the case. If it is, on what grounds? And what efforts have been made to allay those misgivings?

I am interested in the point made by the National Housing Federation on the question of how far the landlord is responsible for reporting change of circumstance. That is, as I understand it, a complicated "horses for courses" situation depending largely on who receives the housing benefit. But clarification is needed and, since it is not clearly understood by those who will be affected by it, such clarification will be extremely welcome. The whole question of treatment of change of circumstances in housing benefit law needs much thought.

Then we come to the remedies suggested by the Minister under this Bill: first, disentitlement to benefit. Clearly there must be punishment for fraud and that punishment must be sufficient to deter. But in my scale of consequences, disentitlement is arguably a more severe punishment than imprisonment. I wonder therefore whether it is exactly proportional. I can see a strong case for imprisonment. But leaving people with no visible means of subsistence is something which the Minister knows, and has known for a long time, gives me profound misgivings.

What if the person concerned belongs to a category which is in no good position to do anything about it? Suppose it is a woman who left home because of domestic violence. Women in that situation often do not have their records in particularly good order. Or suppose it is a recent ex-prisoner, immediately discharged; a person with a criminal record—that is tautological—and therefore knowing, if they are destitute, where they can go to do something about it. It is not a good idea to draft legislation with the purpose of leading us into temptation. That is done enough by the forced circumstances anyway. We do not need to do it any more.

We also need to consider—the Minister knows it is crucial to us on these Benches—what monitoring will be done of the consequence of depriving people of benefit; in particular, whether the Government will monitor, first, conviction rates of those disentitled to benefit against those of others in a similar economic position; secondly, the death rates of those disentitled against those in a similar economic position; and, thirdly, the rates of hospital admission against those in a similar economic position. We need to consider how far that may be properly done by delegated powers.

I leave the Minister with one final point relating to the exchange of information with overseas governments. I would welcome a categorical assurance that under no circumstances will anybody who has applied for political asylum have information about them made available to the governments from which they asked that asylum. We have a great deal of work in front of us. But that is all I wish to say at the moment.