Social Security Fraud Bill [Lords]

HC Deb 27 March 2001 vol 365 cc857-917

Order for Second Reading read.

5.50 pm

The Secretary of State for Social Security (Mr. Alistair Darling)

I beg to move, That the Bill be now read a Second time.

The Bill marks a further step in our drive to tackle fraud and error as part of our wider reforms of the welfare state. As the House will know, we inherited a social security system in which spending had doubled between 1979 and 1997, but at the same time, child poverty had trebled and the number of households with children with no one in work was the highest in Europe. Spending had doubled because of economic failure. It is now under control for the first time in three decades. That is because we are getting more people into work but also as a result of tighter gateways to the benefit system

We also inherited a benefit system that was losing more in fraud and error than it cost to run the entire Department of Social Security. That is the legacy of 18 years of Conservative Government. They did not even attempt to measure fraud for the first 15 years and they did precious little to stop it for their entire 18 years in office. No business would put up with that, and neither should we.

Stopping fraud and error is essential. For example, we have already saved £1 billion during this Parliament by halving the number of income support claims paid out with insufficient evidence. We are prosecuting and sanctioning more people than ever before. Last year, the figure was 22,000, which is 60 per cent. up on the previous year. Those sanctions cost people 100 per cent. of the benefit that they wrongly take plus an additional 30 per cent. That's the price that they pay for doing so.

Fraud not only takes money away from where it is needed most—money that would be far better spent on schools and hospitals or invested in transport—but, crucially, the presence of fraud in the system undermines public support for the social security system. If people see others cheating and getting away with it, they lose confidence in the system. That is one of the reasons for our determination to put a stop to benefit fraud and bear down on error in the system. The Bill is a further step towards doing just that.

Mr. Peter Lilley (Hitchin and Harpenden)

Will the Secretary of State confirm that the latest benefit fraud review measuring the level of fraud in income support and jobseeker's allowance shows that the level of confirmed fraud is higher this year than last year?

Mr. Darling

It shows that there has been the first ever significant fall in fraud in the payment of income support and JSA. The right hon. Member for Hitchin and Harpenden (Mr. Lilley) was never able to say that during the previous Parliament in all his time as Secretary of State for Social Security. As I have made it clear to the House on many occasions, I do not say that we have beaten fraud and error in the system. We have not, but we have begun to turn the corner. The 6.4 per cent. reduction in fraud in JSA and income support is the first significant fall that we have ever seen in those two benefits in the social security system. That is a significant achievement. and we need to build on it as we move towards meeting our target of halving the amount of fraud and error in the system in the next five to six years.

Mr. Lilley

I have just checked the Secretary of State's claim. The Library confirms that the level of confirmed fraud has not fallen. It is only by including errors that the right hon. Gentleman is able to claim a decline. Will he now set the record straight and confirm that when he said "fraud", he was mistaken. He meant that "fraud plus errors" has gone down; the incidence of fraud alone has gone up.

Mr. Darling

When asked about these matters, I repeatedly use the term "fraud and error". [Interruption.] I do. The right hon. Gentleman will see, if he looks back at what I have said over the past few years about fraud and error, that I have given equal importance to stopping both of them. I mentioned, for example—the right hon. Gentleman will be interested in this as he was Secretary of State for Social Security for the whole of the last Parliament—that when we came into office, two out of every five income support cases were being paid without sufficient evidence to justify them. We have halved that figure, saving £1 billion. That figure was almost certainly all due to error in the system.

We have also seen reductions in fraud. The reduction of fraud and error in the system, particularly in JSA and income support, is statistically significant. It is the first time that it has ever happened. The right hon. Gentleman could never have announced such a reduction when he was Secretary of State for Social Security, during the whole of the previous Parliament.

Mr. Lilley

Will the Secretary of State give way?

Mr. Darling

I will give way later on.

Mr. Lilley

rose—

Mr. Darling

I am happy to stay here all night, or however long modernisation allows us to stay these days.

Two years ago, we set ourselves the target of reducing fraud and error in JSA and income support by 10 per cent. All the evidence is that we are already on target to do that and that we will go beyond it in our drive to reduce fraud and error in the system—particularly fraud in income support and JSA.

Mr. Lilley

Will the Secretary of State give way?

Mr. John Bercow (Buckingham)

Will the Secretary of State give way?

Mr. Darling

I will give way to the right hon. Member for Hitchin and Harpenden when I have finished my point, if the hon. Member for Buckingham (Mr. Bercow) does not mind.

I am happy to say again and again that we attach significant importance to the reduction of fraud and error. We are achieving it—something that the right hon. Gentleman could never say during his time as Secretary of State for Social Security.

Mr. Lilley

The Secretary of State has now admitted that he was wrong when he said that fraud had declined— it is fraud plus error. He then went on to say that the reduction was statistically significant. The Library research document says that the small fall in confirmed fraud and error is not statistically significant. Will the right hon. Gentleman withdraw that statement?

Mr. Darling

I certainly will not. The fall is statistically significant, and I attach considerable importance to it. I say again to the right hon. Gentleman that during his entire time as Secretary of State for Social Security, for the whole of the previous Parliament, he could never, ever point to a single success in reducing fraud and error in JSA, income support or, indeed, anything else. As he well knows, because I think that he sometimes had to struggle with his colleagues in the Department, it was not until 1995—halfway through his stewardship as Secretary of State—that he started to measure fraud in the system. I note that he acknowledges that. As we know, that was 15 years after the Tory Government had been elected.

Despite everything that the Tories said and despite all the right hon. Gentleman's conference speeches—the more ludicrous of which we remember—he did not even start to measure fraud in the system until 1995. It was not until 1997 that real, concrete measures were taken to cut fraud and error in the system. We have seen the first significant fall in fraud and error in the jobseeker's allowance and income support, which the right hon. Gentleman never achieved during his time as Secretary of State.

Mr. Bercow

Will the Secretary of State give way?

Mr. Darling

Yes, I suppose so.

Mr. Bercow

I am very grateful to the Secretary of State for giving way, even though he is in a particularly irascible mood today. Will the right hon. Gentleman confirm that the regulations on loss of benefit covered in clause 11 on pages 15 and 16 will be subject to the negative procedure and will not, therefore, be able to be debated on the Floor of the House? If that is so, and given the importance of getting those regulations right, will the Secretary of State undertake to provide a draft of the regulations before the Bill completes its passage?

Mr. Darling

It is always open to the House to debate regulations. The arrangements for doing so are made through the usual channels, either upstairs or on the Floor of the House. I agree with the hon. Member for Buckingham that it is important to ensure that regulations, no matter what they are for, are correct. If he has concerns about that, the scope of the regulations can no doubt be debated at length during tonight's debate or in Committee.

Mr. Steve Webb (Northavon)

Will the Secretary of State give way?

Mr. Darling

Is it on that point?

Mr. Webb

It is on the previous point.

Mr. Darling

I will certainly give way to the hon. Gentleman.

Mr. Webb

The Secretary of State was talking about the Government's record on tackling fraud. I certainly accept that the previous Government did little until late in the day. However, will the right hon. Gentleman confirm the Audit Commission's finding that between the second and third years of his term in office the amount of housing benefit fraud detected by local authorities fell? Why did he allow that to happen?

Mr. Darling

As the hon. Gentleman will know, the business of measuring and detecting housing benefit fraud has been a concern to successive Governments. About two years ago, we changed the way in which we rewarded local authorities. The situation that we inherited from the Conservative Government was that local authorities were rewarded for the fraud that they found. As the National Audit Office identified. authorities tended almost to let fraud come into the system, then detected it and claimed the reward.

Two years ago, we changed the system so that the emphasis was put on preventing fraud from coming into the system in the first place. The approach was different—indeed, it is an approach that the NAO endorsed and it is far better. Of course, it is important to deal with fraud once it is detected, but the emphasis in the Government's strategy—it should be local authority strategy on housing benefit too—is to prevent fraud from coming into the system.

The problem that we inherited was one of wrong incentives—the incentive almost to allow fraud in. We have replaced it With measures that are designed to prevent it from getting into the system in the first place. The National Audit office has endorsed that approach and said so in the subsequent report to the one to which the hon. Gentleman referred.

We are beginning to see the results of the reforms that we have made. There is a clear choice: we either continue with the drive against fraud and error, or we return to the previous situation in the Department, with cuts in investment and staffing that helped fraud and error to enter the system in the first place. Indeed, in the past four years, we have put in place many reforms that were needed to tighten the benefit system across the board: tighter rules and greater conditionality in the system and tighter gateways, but all backed by investment to enable the job to be done.

That investment is critical. We have invested in front-line staff to check and keep claims right. That investment would be under threat if the Conservatives were returned to power because the £16 billion in cuts to which they remain committed and the policy of freezing civil service recruitment would in one year cost more than 5,000 front-line jobs in the Benefits Agency. If anyone is in any doubt, it is those front-line staff who make the difference when it comes to the amount of fraud and error in the system. They check the claims and the facts. Year after year when the Conservatives were in power, the staff were able to spend less and less time checking benefit claims due to staff outs. As I said in a reply to the former Secretary of State, one reason why we have reduced the error rate in income support is that we have more staff on the front line and fewer posts in Whitehall, so we are able to check claims far more efficiently.

Secondly, we ire investing in computers and information technology, which is also important. It is something to which the NAO has repeatedly drawn attention. We inherited a system in which some of the computers on which staff were expected to work were more than 30 years old. Sometimes, our staff go home to find their children working on systems that are more efficient and up to date than some of those that the Conservatives left and expected them to work on. After years of underinvestment, following the spending review last year, we now have the money to replace all of the Department's ageing IT equipment so that our staff have the tools to do the job.

The Bill will enable us to make better use of that technology. Again, that is investment in staff and IT, which the Conservatives oppose. It would all be at risk if they were returned to power because they cannot say that they are going to spend £16 billion—or more—less than Labour, but at the same time pretend that they would maintain our levels of investment in the system. That investment is essential if the system is to be tighter and more robust against fraud and error.

We are also investing in tighter gateways to benefit. The new working age agency will introduce regular interviews for all claimants of working age, helping people to get into work. There will be new rights and responsibilities, but the whole time we will be checking that the right benefit is paid to the right person.

We are also investing to tackle organised fraud. The fight against such fraud is now controlled centrally, which did not happen before, and a new national intelligence unit will ensure that resources are far better targeted than they were.

No doubt tonight we will be told by the Conservatives that they want to set up another national organisation. They claim that by setting up a national benefits squad, they will somehow save £1 billion, just like that. There is no independent evidence to support the claim. If ever there was a fraudulent claim, that is it. I read in The Independent at Christmas, under the heading, "How I will cut public spending to provide money for lower taxes", an article by the shadow Chancellor, who wrote: For instance, we're going to set up a single benefits investigation squad … Common sense measures like these will yield at least £1 billion in savings". He says that by setting up one benefits squad he will save £1 billion. Presumably, if he set up two, he would save £2 billion.

I will be interested to find out in the debate if the present Conservative spokesman, the hon. Member for Havant (Mr. Willetts), can give us one concrete example of how by simply setting up a national investigation squad, the shadow Chancellor can save £1 billion just like that. The Conservatives did not do it in 18 years and I will be interested to hear how they think that they can claim all that money just like that. It is important to them because they have already spent the £1 billion. If they cannot find it, the consequences will be dire.

Mr. John Butterfill (Bournemouth, West)

rose—

Mr. Darling

Perhaps the hon. Gentleman from the Back Benches can tell us how the Conservatives will save all that money.

Mr. Butterfill

The right hon. Gentleman talks about unsubstantiated assertions. I remind him that in a letter to me of 28 November he said that the new IT systems would save more than £1 billion by 2005. That claim is unsubstantiated too. How does he substantiate that figure? I have no doubt that he will make some savings, but how he substantiates his claim I am not clear.

Mr. Darling

The point about IT is simple. The systems that we inherited from the Government whom the hon. Gentleman supported are ageing and will not last much longer. It is not an option simply not to replace them. It is not good enough for an organisation such as the Department of Social Security, which pays out more than £100 billion a year, to rely on IT systems that are 20 or 30 years old. The system needs to be replaced. If we do not do so, there will certainly be more errors in the system and it will be more and more difficult to track fraud.

One of the advantages of the new equipment will be, for example, that if someone claims a benefit in one office and then tries to do so in another office, the information will immediately be cross-matched. The clerk will know that someone has done so. The present system does not allow that.

My argument is straightforward. Replacing the IT systems in the DSS is essential. The NAO has drawn attention to the need to do so for about 12 years. It qualified the accounts of the Benefits Agency for years under the Conservative Government and one reason was that the IT system for keeping track of the amount of money paid out was not up to scratch. We have the money to replace the system. If the Tories were elected again, their guarantee of £16 billion in cuts would mean that the money would not be there to replace the system.

Mr. Butterfill

I entirely agree that it is desirable—indeed essential—to install that equipment. That was not my point. I was merely saying that the right hon. Gentleman had not substantiated the figure that he gave me. I have no doubt that he will make savings, but he said that the shadow Chancellor had not substantiated his figures and I was saying that he makes similar claims without any basis for doing so.

Mr. Darling

I said that the Government will reach the target that they set for a 50 per cent. reduction in fraud and error in JSA and income support. That will be done through a variety of means: tighter gateways to the system, more investment in IT, and ensuring that we have the staff on the front line to check claims. The approach involves a variety of measures, all of which will bear down on fraud.

I repeat that we have, for the first time, seen a significant reduction in fraud and error in income support and the jobseeker's allowance. The Conservatives could never claim that during their time in office. Again, I repeat that they did not even begin to measure fraud and error in the system until 15 years after they were elected. That is an extraordinary state of affairs.

Several hon. Members

rose—

Mr. Darling

I shall certainly give way to my hon. Friends. As has been pointed out from the Opposition Front Bench, we have all night—or at least several hours—and I am happy to stay in the Chamber talking about fraud and error for the whole time.

I look forward to hearing from the hon. Member for Havant. He, too, will have plenty of time for his speech; if necessary, I shall persuade my colleagues to sit tight until he has explained how, simply by setting up a national benefits squad, the Tories will save £1 billion that they have already spent. That is their claim; that is their promise. They say that they will save £1 billion, yet they have already spent it—several times in fact. It will be interesting to hear how they intend to magic up £1 billion—just like that.

Mrs. Joan Humble (Blackpool, North and Fleetwood)

I thank my right hon. Friend for giving way; I have no intention of keeping him here well into the night. On more than one occasion, he has visited Warbreck house—the disability living allowance unit headquarters—in Blackpool, in my constituency. During his visits, did he see the computer pilot project that is under way? It is already paying dividends—to respond to the point made by the hon. Member for Bournemouth, West (Mr. Butterfill). Decision—making DLA staff already find that the new computers in the pilot enable them to operate much more efficiently. Those staff are dealing with many more cases; they are looking forward to the installation in the autumn of more computers throughout the building, so that they can offer the efficient service to which my right hon. Friend refers.

Mr. Darling

I confirm that, as and when new IT is delivered throughout the Department, quality of service improves. Anyone who visited a Benefits Agency office—or indeed Warbreck house—was struck by the quantity of paperwork. Comparison with banks or other financial institutions, which are often paper free, will show just how far we have had to travel. It is a testament to the neglect of the Tories that, during their 18 years in office, they did nothing to replace the tools with which staff were meant to do their job.

Dr. Norman A. Godman (Greenock and Inverclyde)

I am extremely lucky locally, because officials in the local offices of the Benefits Agency treat claimants with commendable civility. What resources and training are to be given to local officials charged with the responsibility of recovering payments made in error? I hope that we shall move beyond the usual letter sent to claimants. Will my right hon. Friend look afresh at how such persons are treated when they have received overpayments due to errors made by local staff?

Mr. Darling

My hon. Friend raises an important point. The quality of the letters sent out by the antique computer systems leaves much to be desired. Some of those letters were insensitive and inappropriate; for example, we are changing the letters sent to people who have recently been bereaved.

If the Department makes a mistake, it should put its hand up and admit it. Equally, where an individual has made a mistake or, in some cases, has been downright untruthful, that individual has to accept the consequences. I shall explain some of the measures that will help in such cases. Staff try to behave appropriately, according to the circumstances.

We are implementing a further measure that will make a difference in dealing with fraud. In two years, we shall increasingly pay benefits directly into bank accounts as the normal method of payment. That will save about £100 million a year on losses through order book and giro fraud. The Conservatives did nothing much about that during their time in office although they did come up with the benefit card—as the right hon. Member for Hitchin and Harpenden would no doubt have jumped up to tell me if I had not pointed it out. That was, of course, another Tory disaster. It did not work; it was behind time; there was a cost overrun and it had to be scrapped. Despite that, the Conservatives are against our plans to pay money directly into people's bank accounts; at least that is my understanding—it is not always easy to make out exactly where they stand. When one considers their strategy, one is struck by the fact that they do not have one credible policy that would work and deliver savings.

We are making progress. We have a strategy that is beginning to bear fruit, but we need to do more to meet our targets. The Bill is the next stage of our reforms—[HON. MEMBERS: "Ah!"] I know that the Conservatives do not like to hear about their shortcomings—about all the things that they failed to do during their time in office. However, when people come to make a choice as to who is best equipped to keep social security spending under control, they will contrast the Conservative party, which allowed that spending to double over 18 years—despite the rhetoric and the conference speeches—with the Labour Government who have kept social security spending growth at its lowest since the second world war. At the same time. we can spend more on families, pensioners and children because we are not spending so much on waste and failure. We are spending on our priorities.

The Bill builds on some of the recommendations made by Lord Grabiner in the report that we commissioned in 1999. We have already implemented many of his recommendations; for example, we have extended nationwide the tighter procedure for the issue of national insurance numbers that we successfully piloted in an area of London. The tighter procedures in that pilot area resulted in more than 300 arrests and the refusal of more than 4,500 applications that might well have been granted if the procedures that we inherited had still been in force. Tightening up on the issuing of NI numbers—also something that the previous Conservative Government failed to do—is central to ensuring that we cut that fraud.

The Grabiner report recommended measures in two further areas that will need the new powers set out in the Bill. First, the Benefits Agency and local authorities need new powers to obtain information from third parties in cases of suspected fraud. Those measures are set out in clauses 1 and 2—I shall return to them shortly.

Secondly, we need to send a clear signal to the hard core of people who carry on cheating the system even when they have been caught. That will not be tolerated. Those who are convicted twice of fraud will lose their benefit—as is set out in clauses 7 to 13. Clause 15 introduces new penalties to crack down on those employers who col[...]ude with their employees to commit benefit fraud. Those penalties will offer an alternative to the sometimes more costly court proceedings.

We also need to combat transnational benefit fraud, whereby people fraudulently claim benefit in more than one country or use foreign identities to claim benefit in this country. A more routine exchange of information will help to identify such crimes more quickly. Clause 5 will allow benefits agencies to supply information to other countries in cases where adequate safeguards exist.

Clause 16 will toughen the offence of failure to report a change of circumstances while claiming benefit. That is one of the biggest sources of fraud in the system.

The Bill has, of course, been scrutinised in another place. Today, I shall concentrate on three main aspects: the power to check the facts where fraud is suspected; the "two strikes and you're out" policy; and the penalties in relation to collusive employers.

First, I shall deal with the measures to provide access to independent information about a claimant's circumstances. The problem is that for far too long the system has had to deal with people who, when it came to the crunch, knew full well that the Department could not check what they had told it. That will change. If we are to succeed in rooting fraud out of the system, we need to be able to cross—check the information that people give us. It is in everybody's interest—individuals and businesses—to ensure that people will be found out when they cheat the system or do not tell the truth.

Almost half of the fraud in two key benefits—the JSA and income support—is due to people failing to tell the truth about their incomes, earnings or capital. The Benefits Agency must have the ability to check where it suspects fraud; and, where it is faced with someone who refuses to cooperate, it needs to require banks or other financial institutions to provide the facts necessary to enable it to discover the true position. The powers for the Benefits Agency and for councils to get information from specified organisations are set out in the Bill.

The use of these powers will be tightly controlled. There will be a limited number of authorised and named officers who can use these powers; I propose to authorise 175 initially, but that figure will rise to 300 officers at 14 principal units across the country.

Clause 3 introduces a statutory code of practice, which sets out for all to see the way in which the powers will be used. We shall consult on that code and it will be laid before Parliament. A draft of the code is available to Members in the Library. The powers will allow only authorised officers to obtain records relevant to a suspected fraud. These powers will also help with housing benefit fraud where a landlord or a tenant claims benefit for someone who is living somewhere else.

Mr. Bercow

In order to maximise the efficacy and the equity of the information-gathering process, what practical cognisance has the right hon. Gentleman taken of the Taxes Management Act 1970?

Mr. Darling

That Act can be of some help, but, in so far as our proposals are concerned, we are giving authorised officers, where they suspect fraud, the power to get information from credit reference agencies or banks to find out whether someone has a bank account and, where the circumstances justify it, what payments might have been made in respect of it.

The DSS and its respective agencies already have powers in specified circumstances to exchange information with, and to get information from, the Inland Revenue because increasingly, and for obvious reasons, the DSS deals with people who have contact with both the Revenue and the Department; but all the time these matters are regulated. They are specified, because it is important to balance giving the Department the additional powers that it needs with the rights of individuals generally, and individuals in particular, to ensure that their individual rights are not impinged on.

A person's right to privacy is very important indeed, but the Department is entitled to set that aside where it has reasonable grounds for suspecting fraud. There are safeguards. I want to ensure that the officers who are entitled to obtain this information are identified. They will be supervised, and there will be many checks to ensure that there is no abuse of the system, and that the information is not wrongly used. But the hon. Member for Buckingham is right to say that, increasingly, the DSS and its agencies and the Inland Revenue need to work together. The Child Support, Pensions and Social Security Act 2000 is one measure that allows them to do so; I am sorry that some of the hon. Gentleman's colleagues who served on the Committee considering that legislation opposed it so strongly.

Mr. Butterfill

I gather that some bodies have suggested that there could be problems with the Data Protection Act 1998. Can the right hon. Gentleman confirm that he is now entirely satisfied that there will be no problem with that Act?

Mr. Darling

I certainly can. As the hon. Gentleman knows, I have to sign a certificate under section 19 of the Human Rights Act 1998, as is stated on the front of the Bill, but I can also tell the House that the Information Commissioner, who is responsible for these matters, recently wrote to me to say that her concerns have been addressed. I believe it is important to balance the rights of the individual with the rights of the public as a whole, to ensure that the system is not abused. I think that we have achieved that balance. There is the code of practice, which the hon. Gentleman may have had the opportunity to read. It is in the Library, and its authority is on the face of the Bill. That is very important.

Mr. David Willetts (Havant)

Will the Secretary of State place in the Library a copy of the letter that he has received from the Data Protection Commissioner?

Mr. Darling

Yes. I can assure the hon. Gentleman that I would not have referred to the letter had I not been confident of what it said, and that I am more than happy to send it to him. The Information Commissioner did have concerns when the Bill was at an early stage, and she wrote several times. I had a useful meeting with her, her staff met DSS staff and, as the hon. Gentleman knows, amendments were made to the Bill in the other place. My understanding is that, as the letter says, the commissioner is now satisfied that we have addressed her concerns, but I am more than happy to make the letter available to the hon. Gentleman and, as he has raised it, to place a copy in the Library.

I should like to talk briefly about the second strand that I referred to—that of removing benefit where people are convicted twice of benefit fraud. It is important that two things happen. First, more effort must be put into changing people's attitudes to benefit fraud. Too often, we meet people who say that benefit fraud does not really matter.

Mr. Bercow

I do not think so.

Mr. Darling

The hon. Gentleman may not meet people like that, but I think that most of us do. I sometimes wonder who the hon. Gentleman does meet when he is outside the House. He and I would probably agree that we are probably very unlike each other. I certainly do come across people who say that benefit fraud is not really a problem—just as, some 20 or 30 years ago, people did not think that drinking and driving was really a crime. It was not uncommon, 20 or 30 years ago—although, I may say, I was quite young at the time—to find people who would think nothing of offering a drink to someone whom they knew would be driving afterwards. I believe that the same cultural change is necessary for benefit fraud.

I know that the Opposition have complained about the advertising campaign that is currently being run on television, but Governments need to focus on getting people to think about benefit fraud and its consequences, because every penny that is lost in benefit fraud could be better spent elsewhere.

It is necessary to go further and to make it clear to people that, if they abuse their responsibilities, they cannot expect to go back on benefit as though nothing had happened; so in the Bill we propose to implement the policy, first raised in Lord Grabiner's report, of "two strikes and you're out". If people are convicted of benefit fraud twice within three years, they will lose their benefit. That policy may be tough, but it is necessary to deal with persistent offenders.

People do have choices. They do not have to fiddle the system; the vast majority of people do not. As I have said before, there is no unconditional right to benefit. There are rights and there are responsibilities. I believe that this policy is justified and will build on policies that we have already implemented with regard to the new deal.

The hon. Member for Havant asked me about the Information Commissioner. I detected a suggestion that I might have said something that might not have represented the whole position. I am grateful to the Minister of State, who has given me the letter from the Information Commissioner. I shall quote part of it, but I can assure the hon. Gentleman that he may have all of it.

The commissioner wrote to me on 20 March. She said: I have now had the opportunity to consider the government amendments which your officials kindly sent to one of her officials. She continued: 1 am pleased that they seem successfully to address the concerns which I expressed to you in the course of our meeting. She went on to say that the official previously named has now written to one of our departmental officials to this effect. The letter is fairly short and fairly straightforward, but I shall certainly send it to the hon. Gentleman. I look forward to receiving his acknowledgment of receipt, so that there is no doubt about it.

I shall say a brief word on collusive employers. My predecessor as Secretary of State shared my frustration that sometimes the court system has not been as efficient or as enthusiastic as we might like in dealing robustly with people who have been guilty of benefit fraud. The Bill therefore gives us powers to impose penalties for the less serious cases, where a penalty of between £1,000 and £5,000 can be imposed on employers who are guilty of collusion in relation to benefits. The use of these civil penalties will make it easier and far more efficient to send a clear message to people who are fiddling the system.

All the new powers that we have taken in the Bill are necessary because they add to the materials that we have at our disposal to continue to bear down on fraud in the system and to cut down on error.

We have changed the social security system to bring in more choices, mote help and more support than ever before, but that is matched by a responsibility on individuals to help themselves and, crucially, to deal honestly with the system. The measures that we have introduced will build on what we have already achieved and will help to stop fraud in future, so we have made a start. We have set clear targets, which the Conservatives never did. We have imposed tighter gateways, which the Conservatives never did. We have seen the first significant fall in fraud and error. As always, I accept that there is a lot more to do, but we shall stop fraud and error only if we continue to invest in front-line staff and in information technology.

The Conservative party is pledged to cut more than £16 billion of public expenditure, so if it were returned to office, those front-line jobs would go, the investment in IT would be cut and, as a result, more fraud and more error would pour back into the system, just as happened during the 18 years when it was in power. The Bill will take our reforms a step further. It will ensure that staff have the powers that they need to check the information needed to stop fraud and to send a clear signal to those who persistently cheat the system that doing so is unacceptable.

Mr. Webb

As the Secretary of State usually leaves the Chamber before I make my speech, I want to raise an issue with him before he does so. Retirement pension is not included in the list of sanctionable benefits because, according to Baroness Hollis, retirement pensioners tend not to commit fraud, but war pensions are included. Is not that an insult to war pensioners?

Mr. Darling

No, it is not. I do not know whether the hon. Gentleman wants us to include pensions, but the figures simply do not justify doing so. That is why I do not propose to include them. He is right on one point: I do not normally remain to hear what he has to say because of circumstances beyond my control, and I am sorry to tell him that tonight will be no exception. For reasons that I understand, earlier business in the House has meant that this debate started a lot later than I thought it would, and many people are awaiting my presence at some stage. However, if the hon. Gentleman is called to speak early enough—or even late enough—I dare say that I shall hear him speak, but I am sure that he will take it on the chin and not get too upset if I do not.

I have no doubt that many other hon. Members will wish to catch your eye this evening, Mr. Deputy Speaker, so I want to conclude by making one important point. There is a lot of talk and rhetoric about fraud and error in the social security system, but the difference between this Labour Government and the Conservative Opposition is that we have a strategy that is working; they do not have a strategy that works. They do not have a single credible proposal that would save a single pound in tackling benefit fraud. They have no strategy whatever. We are beginning to turn the corner. We are beginning to see the results. We are cutting fraud; they could not because they do not have the measures to do so. I commend the Bill to the House.

6.32 pm

Mr. David Willetts (Havant)

The Bill has, of course, been thoroughly debated and heavily revised in another place in response to constructive suggestions from my right hon. Friends and others. I shall quote the final remark in the final day's debate in the other place. The Minister said: I am delighted that the Bill has gone through without Division, though with substantive change. I hope that it is treated in the same conciliatory and positive way in the other place." —[Official Report, House of Lords, 8 March 2001; Vol. 623, c. 340.] I am afraid that, instead of the Secretary of State following the advice of his colleague, we had a taste of what the hustings might be like on a wet Wednesday in Edinburgh, Central. Instead of an attempt to explain in any detail exactly how the Government believe they can use the Bill to tackle welfare fraud effectively, we heard a rather feeble attempt at a warm-up speech for the election campaign.

Let me make it clear to the Secretary of State that we believe that the Bill is better than nothing, especially now that it has been revised and significantly improved in another place. We believe that it is a step in the right direction, so we shall not divide the House on Second Reading.

The Parliamentary Under-Secretary of State for Social Security (Mr. Hugh Bayley)

A ringing endorsement.

Mr. Willetts

The Opposition certainly want social security fraud to be reduced, and, especially with the amendments that have been made to it, the Bill represents a useful step in that direction.

While we are in a mood of positive endorsements, perhaps I can make a personal comment about the Minister of State, the right hon. Member for Birmingham, Perry Barr (Mr. Rooker), as this may be our final debate on social security before the House rises to fight the election—although I know that oral questions will take place next week. The Minister of State is retiring from the House, so in case this is his last full outing in a debate in the Chamber, perhaps I can say that the Opposition have always appreciated the opportunity to debate with him. He has made a significant contribution to pensions policy. He arrived from the Ministry of Agriculture, Fisheries and Food, so he was able to introduce genetically modified group personal pensions—stakeholder pensions—and we appreciated the way in which he drew on that experience in his work on pensions. Many Opposition Members think that the right hon. Gentleman was the best Chief Whip that Labour never had, and I wish him well as he retires from the House.

This modest and sensible Bill has been introduced after four years of not much activity among Ministers. Certainly, the level of activity has been pathetic compared with the arguments and observations made about the size of social security fraud. Back in July 1998, the original Government publication, "Beating Fraud is Everyone's Business" state that: a conservative estimate of fraud is £2 billion … the figure could be much higher, around £7 billion if all suspicions of fraud were well founded. One of the ways in which Labour Ministers have tried to show that they are making progress in tackling fraud is by reducing the size of their estimate of fraud. We do not hear so much about £7 billion now, but they were happy to talk about £7 billion then. The Minister of State famously answered a parliamentary question by specifying that there could be total of £7 billion of "definite", "probably" and "possible" social security fraud.

I should be interested to know whether Ministers still believe that there is £7 billion of fraud. I should also be interested to know whether Ministers agree with the proposition in their own manifesto, on which the Secretary of State and his colleagues fought the last election, in which they said: We will start with a clampdown on Housing Benefit fraud, estimated to cost £2 billion a year". I wonder whether they still believe the estimate that housing benefit fraud costs £2 billion a year, because such figures put their record on social security fraud into perspective. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) said so effectively, the only way in which the Government can claim any progress at all is by combining fraud and error.

I recognise that in a complicated social security system, error can slip into fraud; it is not always possible to make an easy distinction between the two. It is perfectly possible for someone initially to make a genuine mistake in filling in a claim form. By and large, if the mistake or error leads to an underpayment, people are more likely to go back to their benefit office and challenge it than if the error leads to an overpayment. Those who consciously accept an overpayment are on the slippery slope that leads to deliberate fraud. I recognise that links exist between fraud and error, so I hope that the Secretary of State will recognise, that one of the best ways to tackle fraud is by reducing the complexity of the social security system. Fraud and error breed in a system that is far too complicated to administer.

The Public Accounts Committee got it absolutely right in a report last year, when it stated that without simplification"— of the rules on income support— 10 per cent. of payments would always be wrong. That represents a warning about the consequences of an overcomplicated social security system. Our criticism of the Government is that, far from making it simpler, they are perpetually making yet more complicated. That is why there is so much fraud and error. The Government can get at the root of the problem only through genuine simplification.

The Secretary of State claims the credit for setting up a system properly to measure fraud and error, but, of course, that system was set up by my right hon. Friend the Member for Hitchin and Harpenden, a previous Secretary of State. The Government are ignoring the problem with tax credits, which represent another complicated new system that is wide open to fraud. We hear dismissive answers from Ministers, who deny that an easy way to measure fraud exists. At the moment, they refuse to offer any estimates whatever of fraud and error in tax credits, but we know that they are a significant problem.

The providers of child care are directly affected. They have brought to our attention the scandal of people claiming the tax credit for child care, providing invoices and estimates for child care that they have not used and pocketing the cash. That is a classic example of the way in which tax credits are exploited because they are wide open to fraud and abuse, yet Ministers have discontinued the estimation of fraud for inwork benefits that we introduced when we were in office in an attempt to deal with the problem of fraud in family credit, as it then was.

Mr. Butterfill

Does my hon. Friend agree that the move towards credits adversely affects the cash flow of many small businesses, without any apparent compensation for the difficulties that they face?

Mr. Willetts

My hon. Friend is correct. We have many criticisms of tax credits and I know that it is sometimes with a sense of relief that Ministers in the Department of Social Security say that such credits are now a matter for the Treasury. However, the administration of tax credits is an increasing scandal in the tax and benefits system. In my surgery, I have to deal with more problems involving the working families tax credit—WFTC—than I do with problems involving the Child Support Agency.

The problems that people face with the WFTC, and the fraud and error involved, are significant. That is why I regret the fact that the provisions in the Bill explicitly exclude tax credits. It is a great pity that tax credits are not included within its scope.

Mr. Bercow

My hon. Friend rightly said that the Bill was modest, and that is in stark contrast to the bloated rhetoric of the Secretary of State's speech, which was wholly out of proportion to the limited accomplishments that the right hon. Gentleman has to his credit. Would my hon. Friend care to say something about the recent plaudits that Wandsworth council has earned for its excellent and robust policy in prosecuting fraudsters? Will he also comment on the appalling incompetence of Labour councils in failing to bring fraudsters to book and on the two-fifths of local authorities that have no formal prosecution policy for fraud?

Mr. Willetts

My hon. Friend is right. As I was listening to the Secretary of State, I recalled the definition of absurdity as using a great force to lift a light object. I am afraid that that is what we heard from the Secretary of State. I shall come to my hon. Friend's point about local government shortly, but the mixed record of local authorities in tackling welfare fraud is another scandal that the Bill does far too little to address.

The problem of tax credits was outlined very well by the right hon. Member for Birkenhead (Mr. Field) in a speech just under a year ago to a forum on fraud organised by the credit industry fraud avoidance system. I hope that he will correct me if I am wrong, but the press release that was issued on that occasion said: The Inland Revenue have indicated to the Social Security Select Committee that the security arrangements are similar to those for the WFTC's predecessor Family Credit. The Benefit Review of fraud in Family Credit was cancelled following Frank Field's departure from office. There is particular concern over fraud involving nursery schools and collusion with employers over wages. That is the account of the points that the right hon. Gentleman made last year, and I wholeheartedly agree with him. Given the evidence of fraud in tax credits, their deliberate and explicit omission from clause 7(8) of the current Bill is a serious matter that should be addressed.

There are other reasons why the Government have not been able to tackle fraud as effectively as we would have liked. It is not just that they have been a soft touch when it comes to tax credits. For example, I was struck by the evidence of the way in which the new deal has diverted people's efforts away from effectively tackling fraud. The 32nd report of the Public Accounts Committee, which was published last July, stated: As regards Jobseeker's Allowance, Mr. Mathison noted that the main contributory factor"— to the level of fraud and error— had been the impact of the New Deal and various other Welfare to Work initiatives. involving the Employment Service. Experienced staff had been diverted on to these projects, leaving new and inexperienced people to deal with the administration of Jobseeker's Allowance That was Mr. Mathison's explanation of the unacceptable level of error and fraud in the system. The Government will not be able to get away with some of the claims that we have just heard from the Secretary of State, given that their own officials hive said that the new deal has diverted people away from effectively and accurately delivering benefits to unemployed people.

What we have had from the Government—typically, of course—is a large number of press releases and a large amount of expensive advertising. We have counted 45 separate press releases during their period in office. They have averaged about one a month, and all have claimed that the Government are taking bold new initiatives to tackle fraud, whereas, in practice, they have done precious little about it.

The current advertising campaign has been received with widespread bafflement. I do not know how many millions of pounds the Government are paying for the press and television advertisements, but let us consider the effect of saying 'It's only a few quid, who notices that?' Do you find this acceptable? It is extremely doubtful whether such remarks, together with the many quotes apparently justifying welfare fraud, are having any effect in putting people off committing welfare fraud.

Unlike the advertisements that were produced when my right hon. Friend the Member for Hitchin and Harpenden was Secretary of State, these advertisements do not provide a telephone number that people can contact to shop a benefit cheat. They offer no means by which people can act. There is simply the slogan "Targeting Fraud", with no suggestion of the practical action that can be taken.

Mr. Webb

It is a post-modern advertisement.

Mr. Willetts

It will certainly soon be post-Labour.

We know from evaluation of trials in the north-west that that approach was ineffective, but Ministers continued to spend all that money on the advertisements. The Secretary of State placed the evaluation report in the Library in response to a question that I tabled, and I appreciate that. The report states: One negative impact that may be the result of the campaign was that respondents within the test area perceived benefit fraud as easier to commit. It was hardly a brilliantly successful anti-fraud advertising campaign. In fact, rather ruefully, the report added: However, it is difficult to make people aware that benefit fraud is widespread without increasing their perception of how easy it is to commit at the same time The following page of the report continued: In terms of likelihood of reporting someone via the NBFH"—that is the hotline— "results in the test area do not really show much difference to the country as a whole—demonstrating once again how entrenched opinions are on this topic. The evaluation showed that, in the north-west, one of the effects of the advertisements was to make people think that benefit fraud was easier to get away with. There was no evidence whatever of an increase in the number of people reporting fraudsters to the hotline. None the less, despite the evidence from the north-west that the pilots were not getting the message across, Ministers went ahead with spending millions of pounds on a national advertising campaign. That is why the Department of Social Security's advertising budget is spinning out of control.

We see another example of the way in which spin has gone ahead of substance when we investigate the "two strikes and you're out" policy. The policy gets headlines for the Secretary of State, but how many people will be penalised by it? I tabled a parliamentary question simply to establish how many people had been successfully prosecuted twice for welfare fraud. The fact is that not many people are prosecuted successfully once. The figure is about 10,000 a year. The Minister of State replied: Our research suggests that approximately 5 per cent. of prosecutions involve a person with a previous conviction for benefit fraud. According to the Minister's figures, about 500 people are second-time offenders. That is 500 too many, and of course we must be tough on them, but it is rather surprising that Ministers make such play of that provision and give it such a high profile when. as the Minister of State went on to say, they are putting in place mechanisms to identify second and further convictions." —[0fficial Report, 10 January 2001; Vol. 360,c. 576W.] The Government did not even have the evidence on the number of people who had twice been successfully prosecuted for welfare fraud before they decided on the policy. Their estimate that there are perhaps 500 such people does not justify all the hype and headlines.

What more could be done? One of several possibilities is to implement the Scampion report on organised benefit fraud. I very much regret the way in which the Secretary of State smuggled out that report last January, and he has still not implemented all its recommendations. It is not simply a matter of setting up a single national agency, although that is one of Scampion's proposals that we have endorsed but the Secretary of State has not implemented The underlying point in the report is that the problem is not merely an absence of legal powers. Indeed, it is doubtful to what extent it is a legal problem at all. It is an organisational problem, and a point about Ministers' commitment to tackling fraud. Passing laws or changing legal powers is the easy bit. The difficult bit is changing the culture of an organisation so that there is genuinely effective work on fraud.

We were all shocked when, on 23 January 2000, after his departure from the Government, the former Minister for Welfare Reform, the right hon. Member for Birkenhead said: My first big shock in Government was the realisation of the political reluctance to bear down on the welfare cheats. Political will and organisational discipline are at least as important as legal powers.

Mr. Darling

The hon. Gentleman will accept that the last time that he launched into this theme, in The Times, John Scampion was quoted as saying that he was quite happy with what we were doing and that it in no way undermined what he was doing. Can the hon. Gentleman tell me how setting up a national organised benefits squad would save £1 billion in itself, as the shadow Chancellor keeps claiming?

Mr. Willetts

That is one of the measures that we would take, which together would ensure that we saved £1 billion. Tackling organised benefit fraud, which is a significant part of the problem, through the measures identified in the Scampion report would make a significant contribution to that target, but that is not all that we would do.

Mr. Darling

How does the hon. Gentleman know that he would save £1 billion, given that the Conservative Government did not do so in 18 years? He must know that the shadow Chancellor has already spent the money over and over, so he must know that he has it.

Mr. Willetts

The Secretary of State and his colleagues have said that they estimate that there is £7 billion of welfare fraud. In the manifesto on which he fought the last election, he even said that there was £2 billion of housing benefit fraud alone. [Interruption.] It is no good the Under-Secretary of State for Social Security, the hon. Member for Wallasey (Angela Eagle), saying that there is £2 billion of fraud in total. Four years ago, she fought the election on the manifesto claim that there was £2 billion of housing benefit fraud alone, and I presume that she does not think that there is zero fraud everywhere else in the social security system.

If there is £7 billion of social security fraud, we believe that we can take measures that will, between them, ensure that an extra seventh of that sum—£1 billion—can be saved. One of the ways of doing that is to tackle organised welfare fraud by fully implementing the proposals in the Scampion report. That is not merely a question of legal powers, although as I said at the beginning of my speech, the Bill is a useful step forward in that respect. It is a question of tackling organisational matters and bringing together the disparate responsibilities in different parts of the Department.

Mr. Darling

I have never claimed that there is £7 billion of fraud in the system. Interestingly, when the right hon. Member for Hitchin and Harpenden (Mr. Lilley), who is here tonight, was Secretary of State for Social Security, it was suggested to him that there was £7 billion of benefit fraud, and he rightly rubbished the suggestion—as I do, because there is not.

The hon. Member for Havant (Mr. Willetts) appears to be arguing that because there is fraud in the system, he would be able to save £1 billion just by setting up an organised benefits squad. He is flying by the seat of his pants. Given that the Tories did not manage to cut any fraud during their time in office, how can he say that he knows that he would save £1 billion, especially bearing in mind the fact that the money has already been spent? All he has is an IOU. What evidence does he have that suggests that he could possibly save £1 billion?

Mr. Willetts

I remind the Secretary of State of what I said a few moments ago, when I quoted from the Government report, "Beating Fraud is Everyone's Business", which contains an estimate of social security fraud. It says that a conservative estimate of fraud is £2 billion a year; but the figure could be much higher, around £7 billion, if all suspicions of fraud were well founded. It is no good the right hon. Gentleman now saying that he does not recognise or use that figure. He cannot deny that his Department's main document on social security fraud, published in July 1998, since he came into office, contains the figure.

Mr. Butterfill

It is perhaps worth quoting the Minister of State, who said in a written answer: Previous estimates have shown that £2 billion a year has definitely been lost through fraud. A further £3 billion may have been lost in cases where fraud is strongly suspected and a further £2 billion where there is some suspicion of fraud."—[Official Report, 20 December 1999; Vol. 341, c. 323W.] That seems to add up to £7 billion, so perhaps that is where the Government got the figure from.

Mr. Willetts

My hon. Friend is correct. It is no good the Secretary of State now trying to escape from figures, which the Government have happily endorsed in the past, that add up to £7 billion.

In tackling £7 billion of welfare fraud, we would not rely entirely on Scampion's proposals, but tackling organised benefit fraud would make an important contribution to our £1 billion of savings. Local authorities are another area in which much more could be done, and are another example of the Secretary of State talking tough but failing to deliver.

For my sins, I receive a regular supply of the Secretary of State's press releases. One, dated 6 March 2000 says, "Darling Gets Tough with Councils failing to tackle Housing Benefit Fraud." In it, the right hon. Gentleman says: I want to make it abundantly clear that where investigations by the Benefit Fraud Inspectorate reveal weakness I will expect authorities to act immediately to remedy them". He continues: Where the BFI identify persistent service failings by councils I will use my powers to direct standards and timescales for improved performance. What has the right hon. Gentleman done in the year since that announcement, in which he talked so tough?

The Secretary of State has received many reports from the benefit fraud inspectorate. Since January 2000, he has had seven reports that were favourable to councils, but he has had 40 critical reports, saying that councils are not effectively tackling welfare fraud. I have them here because we follow these matters carefully. On only one occasion—I think wretched Northampton was the victim—has he done as he threatened and used his powers to direct standards and impose time scales for improved performance. After all that huffing and puffing and 40 critical reports, only one case has led to a ministerial direction.

That is one reason why the figures for housing benefit and council tax benefit fraud are so bad. In the last year for which we have reliable figures, there were 160,000 cases of established fraud, 1,900 cases referred for prosecution and 800 successful prosecutions. That is a strike rate of 0.5 per cent., which is simply not good enough when we are trying to tackle fraud in local authorities. That is why we have said that when local authorities are clearly not up to the administration of housing benefit, that responsibility should go to the Benefits Agency. [Interruption.] The Under-Secretary asks how we would decide which local authorities were not up to the job. I am pleased she asks, because I would like to ask Ministers a question in return. They clearly do not trust some local authorities with the powers to secure private financial information of the sort for which they are providing in the Bill.

Proposed new section 110AA(5) allows the Government to determine that only some local authorities are able to exercise the powers. The Secretary of State decides whether a local authority can exercise the powers. The Under-Secretary has a view about the local authorities that she would trust with them. That is based, presumably, on information that she has about which local authorities are effectively and competently pursuing fraud and which she does not trust to use such information competently or to keep it confidential. We would act on similar information to decide which local authorities are capable of properly administering housing benefit. We would also take into account information from reports by the Audit Commission and the National Audit Office.

The clear implication buried in the Bill is that Ministers do not trust some local authorities to use the powers to tackle fraud. I suspect that they are right. The Government should use their powers in that way. We pursue that policy to its logical conclusion. If Ministers cannot trust a local authority with information that will be secured to tackle fraud, why are they sitting there and allowing that authority to administer housing benefit when the level of fraud is so high? On a selective basis and in those circumstances, we believe that the Benefits Agency should administer housing benefit.

The Government can do something about national insurance numbers, to which the Secretary of State briefly referred. Since they took office, more than 4 million national insurance numbers have been added to the Department of Social Security register and only 300,000 have been removed. Britain now has 81 million national insurance numbers for 60 million people. At first we were told that that was because of people who are entitled to contributory benefits from a deceased spouse. That might explain a few million extra numbers, but it does not explain why there are 25 million more numbers than there are people in the United Kingdom.

The Secretary of State struck a different note today. He no longer complacently defended the 81 million national insurance numbers. Instead, he claimed that the Government would tackle the fraudulent national insurance numbers.

Mr. Darling

The hon. Gentleman raises an important issue. There are two reasons why national insurance numbers rose dramatically in the past 10 years. First, in 1990–91, the Conservative Government understandably decided that married women who did not have national insurance numbers should get them, so they issued 3 million. Secondly, in 1992–93, they issued 13 million numbers for children. The hon. Gentleman should remember those policies because I think he was a Minister at the time. The fact that we have a much larger number of national insurance numbers than people of working age is substantially because 10 years ago the Tory Government issued an awful lot of them.

There are 47 million national insurance numbers for UK residents over the age of 16. That is think, an Office for National Statistics figure. About 12.5 million national insurance numbers are for children who are coming into the system. They are called child reference numbers. Each year, 700,000 national insurance numbers are added because a number is issued every time a child is born.

As the hon. Gentleman rightly recognises, some national insurance numbers have to be kept in existence. There are two reasons for that. First, the spouse of someone who dies might have rights that accrue from that person's contributions, so the number has to be retained. Secondly, people who come to this country to work get a national insurance number and might then leave or, in the case of expatriates, return. That is why there is an excess. I accept that we need regularly to cleanse the numbers, we are doing that. The figures show that we have removed rather more numbers than the Tories ever did.

Mr. Willetts

That was a lengthy intervention to tell us what we already know. We recognise that the previous Government correctly decided to make child benefit numbers proto-NI numbers. Indeed, every member of the population should have a child benefit number as a step towards receiving a national insurance number. As the Secretary of State is in intervening mood, does he think that all the 81 million national insurance numbers are valid, or have some people falsely obtained them?

Mr. Darling

I said that we are introducing tighter checks on the granting of national insurance numbers. When we tried out the new procedures in south London, there were 361 arrests and a number of deportations. Some 4,600 applications were refused which would otherwise have been accepted. Many measures are at the disposal of the Government to tackle fraud and system errors. The difference between this Government and the Government of whom the hon. Gentleman was a member is that we are implementing them and beginning to turn the corner in our fight against rising fraud and system error. National insurance numbers are no exception. The reason for my long intervention is that the hon. Gentleman was talking nonsense—

Mr. Deputy Speaker (Mr. Michael Lord)

Order. I appreciate that the issue is complicated, but the Secretary of State's interventions are verging on speeches.

Mr. Willetts

The Government are not implementing those measures; they are merely talking about it. That is why there are 45 press releases and a statistically insignificant change in the amount fraud. There is a great deal of talk, but not much action.

Mr. Butterfill

I checked the numbers with the House of Commons Library. There are 82 million national insurance numbers and 48 million people of employable age.

Mr. Willetts

My hon. Friend is correct. It is important that we have effective data cleaning. My right hon. Friend the Member for Hitchin and Harpenden initiated such a project when he was Secretary of State in 1995. It was a good example of how the problem should be tackled.

Let me move on from national insurance numbers— [Interruption.] I warn the Under-Secretary, the hon. Member for City of York (Mr. Bayley), that I will respond to his challenge and talk at even greater length about them. I do not believe that issuing 4,061,512 national insurance numbers between 1997 and 2000 was effective control of the problem. The figure is too large and suggests that the controls are not tight enough.

I am concerned about the effectiveness of the proposals. We must consider whether we can be comfortable that the powers to secure data from private sources will be safe not just from a challenge by the Data Protection Commissioner—I look forward to seeing her letter, which the Secretary of State has generously agreed to provide—but from a challenge under the Human Rights Act 1998. The other place debated that at length, but did not reach a conclusion.

When the assistant commissioner spoke at a conference of the British Bankers Association last week, he outlined the difficulties that the office of the Data Protection Commissioner has with the Bill. There is a widespread anxiety that the powers might not be secure if they are challenged under human rights legislation. It would be a frustrating but all too typical example of the way in which the Government behave if powers that are taken with a flurry to demonstrate their effectiveness in tackling welfare fraud result only in a challenge in the courts and cannot be used as originally intended. [Interruption.] The Secretary of State is offering me the commissioner's letter and I look forward to studying it.

We need an assurance not just that the Data Protection Commissioner is content with the Bill, but that the Secretary of State believes that he can stand by his judgment on the front of the Bill that its provisions are compatible with the European convention on human rights, which is incorporated in UK law. We still need further information on that point.

When the Minister of State replies to the debate, I would like to hear his estimate of the burden on business that will result from the enactment and implementation of the proposed legislation. Very few of those working in the financial services industry believe Ministers' estimates of the cost of compliance, which range from £2.3 million to £7 million. One bank alone believes that 38 additional staff will be needed to comply with the Bill's provisions. We know from Ministers that they are expecting 900,000 inquiries a year when the Bill is enacted. The idea that those inquiries can be dealt with by private sector banks and financial institutions at a maximum cost of £7 million is one that is difficult to believe. I hope that we shall hear more from the Minister of State about the real burdens on business.

I hope also that we shall hear more about the way in which the Department will be organised to discharge the powers that it will have when the Bill is enacted. I do not know whether what the Secretary of State said was new. I suspect it was a new and lower estimate of the number of officials in his Department who in the first instance would have powers as designated officers to pursue information, using the provisions set out in the Bill.

Another concern has focused on the number of people who will be so empowered and how well they will be trained. There is the problem of spoofing. Bogus inquiries will be made to banks by people claiming to be working for the Benefits Agency. The Secretary of State should know about that. We have had a great deal of spoofing by the Government over the past four years. There is a need also to have single and reliable points of contact.

It seems that we are reaching the stage where there will be only 14 area benefit offices, with relatively few staff. They will be expected to discharge their powers under the Bill. We shall listen with great interest to anything that the Minister of State can say about what that means for the organisation of the Benefits Agency.

We will not oppose the Bill on Second Reading. The measure has been heavily revised and improved in another place. It is a modest step in the right direction. We do not believe that it will deliver what the Secretary of State and his ministerial team claim for it. That will require energetic ministerial intervention and organisational change within the Department, and that will have to wait for another Government.

7.12 pm

Mr. Frank Field (Birkenhead)

The hon. Member for Havant (Mr. Willetts) began his brief contribution to the debate by commenting that this evening may be the last occasion on which we shall hear my right hon. Friend the Minister of State speak from the Government Front Bench. The hon. Gentleman also began with comments about my right hon. Friend, and I hope to conclude my equally brief contribution with comments about him too.

I hope also that there are those who can make a distinction between this being perhaps the last speech that we shall hear in this place from my right hon. Friend, but not the last speech that he makes in Parliament. [Interruption.] If the hon. Member for Havant and others will contain themselves, I will suggest why Parliament would be strengthened if my right hon. Friend's speech this evening were not his last.

Much has been made about the extent of social security fraud. Most of us will conclude that it is too large and that it may be growing. The Government have introduced the Bill because they wish new powers to be more effective than those that Governments have had in the past to safeguard taxpayers' money. It is fair game to cite and to criticise the figures in "Beating Fraud is Everyone's Business: Securing the Future", but I must declare an interest. For about three months, I was the Minister responsible for counter-fraud, and during that time the document was produced. Though the figures did not come down from Mount Sinai, they did go through No. 10. If there is a wish to query them, people should know that they have that stamp of approval.

In the spirit of give and take, I shall suggest four modest but important ways in which the Bill could be improved. As in the other place, I hope that the Government will be open to suggestions. The first involves working families tax credit. I cannot believe that the Secretary of State, who is as anxious as anyone to bear down on fraud, would willingly exclude WFTC from the Bill.

When we consider the Bill in Committee and on Report and table amendments to include working families tax credit, I hope that my right hon. Friend will invite those of his colleagues who have opposed WFTC being part of the Bill to defend their action, and not leave him to defend an omission that I am sure he was anxious not to agree initially.

There is resistance to serious consideration of possible fraud problems with the WFTC. It was not only when the ministerial team first met after the general election that I suggested that if the WFTC was to be part of our programme, we should undertake a benefit review of family credit. During my 13 or so weeks as a Minister, I asked for that review to take place. I am not surprised that those papers no longer exist. I have no doubt that most of them will disappear down a black hole, as did so many of the papers relating to other activities at that time.

From talking before the general election, let alone since, to counter-fraud officers who deal with the WFTC, it would be necessary to be simple beyond words to believe that there was not a major issue. As the Green Paper stated, when new benefits are being designed, we should try to design out the obvious ways in which fraud is being committed on current benefits. It stood to reason that we should have had a benefit review of the WFTC. We did not, but that is water under the bridge. None of us has the power to shift the bridge further downstream so that the water can pass under it again. However, we can ensure that the WFTC comes within the ambit of the Bill. That is my first suggestion.

My second suggestion is to strengthen the proposed penalties. I hope that we shall move to two strikes and out. That should be our policy, with no qualifications and no changes. However, we should not kid ourselves that that will deal with the more serious crimes against taxpayers in respect of social security fraud.

On reading the Bill, it is interesting to ascertain where the Government think that the main fraud is located. It is in that area that they are proposing penalties. There are the individuals who might suffer the two strokes and out, and employers. I know that my right hon. Friend has spoken to those in the credit industry who are concerned about countering fraud, and about the people who they see practising fraud against them and the taxpayer. They have an image of well-organised firms undertaking such activity, and some of them are prepared to use guns.

The thought that a two strikes and out policy, or an up to £5,000 fine for employers, could deter that group suggests to me that we will welcome an opportunity to consider penalties again and further to strengthen the armoury that taxpayers have to protect their hard-earned income.

That leads me to my third suggestion, which relates to national insurance numbers. There was horror in the Department when, as a Minister, I suggested that we should consider the probity, the record and the background of those who issue national insurance numbers. It said that staff would be up in arms. I have never taken that view; with identity cards, all those who have nothing to hide would have no worries about such changes.

We should encourage the Government now to make a move on looking at people's backgrounds to ensure that staff are who they say are when they apply for jobs, especially those who are in charge of issuing national insurance numbers. If one goes back to the gangs—which, after all, are attacking taxpayers' biggest budget and the image that the credit, banking, finance and insurance industries present about these people—it is inconceivable that those highly organised groups have not placed some of their people on the inside so that they know which of those excess national insurance numbers can be used safely for the creation not just of the odd identity, but mass identities. When we come to consider the Bill in Committee and on Report, I suggest that we strengthen the Government's hand on safe guarding national insurance numbers.

Mr. Webb

I wonder whether I can make a link between what the right hon. Gentleman has just said about infiltration of the Department of Social Security and the powers in the Bill to have a good nose around people's bank accounts. Does the conjunction of the two concern him?

Mr. Field

I hope that I will be here when the hon. Gentleman speaks. It is not that I have important meetings to go to, but I have a personal one to attend, so I may not hear his contribution. I am not quite sure of the connection that he is making.

There are civil liberty issues that relate to this issue and other aspects of the Bill, and it is proper for people to be concerned that the weight in our society is against civil liberties and in favour of protecting the majority. I do not share that view, but I respect the fact that others hold it. I do not think that we have got the balance right, and the Bill moves in an important direction to strengthen the hand of taxpayers collectively to look after their hard-earned income, as against the possible infringement of certain people's individual rights, although most of that group are undertaking activities that are not in the interests of decent taxpayers—[Interruption] Perhaps I shall pick that point up later. Although there is a conflict, I come down firmly on the Government's side.

My final point is about what the Bill calls data sharing, although the industry calls it data raiding. Later in the Bill's proceedings, I hope that we can suggest that it becomes genuine data sharing. One useful amendment would be to give the Government power to join CIFAS, the credit industry fraud avoidance system. From a comment made by my right hon. Friend the Minister of State, it appeared that there was a legal bar against the Government joining that organisation. Merging the Government's information on trying to counter benefit fraud with the information that the industry has on its way of trying to counter fraud would help us as consumers to pay lower premiums and, I am sure, pay huge dividends for taxpayers. That is only one move in what I hope will be a whole series of moves on data sharing that would shift the balance towards decent citizens, and against our comrades who so often put two fingers up to us and run amok locally and nationally.

Those are my suggested reforms, which, I hope, we can add to the Bill before we enter the election fray. I said at the beginning of my speech that I wanted to conclude by picking up the theme of the hon. Member for Havant in respect of my right hon. Friend the Minister of State. I have been in the House for 22 years, and my right hon. Friend was a Member of Parliament when I arrived. I first met him when I worked for the Low Pay Unit and, in its early days, came with another member of the unit—who is now my hon. Friend the Member for Gravesham (Mr. Pond) —to speak to a group of Labour Back Benchers. I hope that by raising that I do not harm my hon. Friend's career in any way.

As an ordinary worker in the Low Pay Unit, my hon. Friend raised the question of indexing allowance. Two people in the room were taking copious notes; my right hon. Friend and my friend Audrey Wise who, until recently, was the Member for Preston. I was surprised because, not only did they take notes and table the relevant amendments but, when the then Government were on a knife edge, with almost no majority at all, they both stood their ground and made reforms for which many people continue to be grateful to them.

The first characteristic of my right hon. Friend of which I was aware was his bravery under fire, as they say. During the long years of opposition, I also learned that if he thought that something was right, he would say so in the Chamber. We have heard this evening that a lot of people out there need to be convinced that fraud is bad, but I have not met any of them. However, he and I faced quite a few Members in the Chamber who did not think that countering fraud was important. The fact that all three parties now have a united front on countering fraud owes not a little to the stance that he was prepared to take in opposition, when his own side was still wandering around the garden of Eden suggesting that it was not a problem at all.

The fact that we now have a much more determined fight against fraud and that the Government are adding to their powers in the Bill is one small testament to the effect that my right hon. Friend has had on debates in this place. As I said, I hope that this is not the last time that Parliament hears from him.

7.27 pm

Mr. Steve Webb (Northavon)

May I pick up where the right hon. Member for Birkenhead (Mr. Field) left off and perhaps make the Minister of State feel even older? As a child living in Great Barr, just down the road from his Perry Barr constituency, I used to read the Birmingham Evening Mail every night and see his face there; I thought that when I grew up, I wanted to be just like him—[Interruption.] I am not sure that it ever came to that.

As the right hon. Member for Birkenhead said, Members on both sides of the House are united in the view that fraud is a serious issue that costs a considerable sum. However big the figures— £2 billion or £7 billion—they are hard to grasp. Whatever the amount, it is enormous and could be used better than by being spent on fraudulent benefit claims. Clearly, we all want more action on fraud. Later, I shall come on to the fact that I am not convinced that the Government are using their existing powers to tackle fraud effectively.

We have had a knockabout, but I want to look at the Bill itself. It is called the Social Security Fraud Bill, and it sounds as though it must be a good thing, because we are all against fraud. However, we must always ask whether its measures for tackling fraud are appropriate: do they go too far? I want to focus on that question.

I want to raise a number of concerns—especially the business about delving into people's bank accounts and credit reference agencies—that are raised by clause 1. When I have done so, I hope that the Minister will respond to them in his reply, unless he has a better engagement, but I am sure that he will be here until the bitter end.

First, I turn to the scale of intrusion. In the other place, Baroness Hollis gave an assurance that there would be no fishing trips, yet the regulatory impact assessment states that there will be 800,000 inquiries every year, many of them into bank accounts, credit reference agencies, utilities, telecommunications and so on. Some are unexceptionable. There is nothing wrong with asking a utility company whether any gas or electricity has been used at a house, and if it becomes apparent that no fuel has been used in the house, it is appropriate to wonder about paying someone housing benefit for occupancy of it.

However, hundreds of thousands of inquiries to banks and building societies are mentioned. There is a contrast between that number, which was not used by the Secretary of State—he hardly touched on the Bill until quite late in his speech—and the impression that the Government are trying to give that the process will be measured, carefully scrutinised and carried out under controlled circumstances. The two things seem to be at odds. It is hard to see how hundreds of thousands of inquiries into people's bank details are consistent with a carefully controlled examination of only the information that needs to be examined.

My first worry is that the scale of the exercise will make it difficult to control. In another place, the Government stressed that there would be safeguards, that there would not be fishing trips and that checks would be made, but the scale that is envisaged makes me wonder whether that is practical. I have my doubts.

The second concern is whether those activities will be subject to independent scrutiny. An analogy has been drawn with the tax commissioners in the case of the Inland Revenue, who have an independent status, whereas the activity envisaged by the Bill will be subject to what are called management checks. Much of the scrutiny to determine whether the powers are being used properly will be internal.

In years to come, I can imagine constituents complaining to us that the DSS has been getting copies of their bank statements and finding out about their personal details. People will be shocked that the Department can do that, particularly when they are proven to be entirely innocent, and we will feel that we should have made sure that there were more safeguards in place—independent safeguards, not just someone else in the Department saying, "Yes, it is all right."

I am aware that there is a code of practice, and I am grateful to the Department for making it available to us. I know that only part of the code of practice was available to another place when the Bill was considered there. The code of practice is helpful, but its contents do not form part of the Bill. It is referred to in the Bill, but breaching the code of practice is not, in itself, an offence. Critically, the code of practice can be amended without reference to the House—I believe that I am right in saying that. At a later stage, we may wish to explore the conditions under which it can be amended. If that is the safeguard—if the Minister's response to our concerns is, "There is a code of practice, which is publicly available"—we need to be reassured that it cannot be changed, thereby possibly undermining people's protection, without proper scrutiny in this place.

A further source of concern is the seniority of the staff involved in examining people's bank accounts. In other cases in which those powers exist, the prying into people's personal circumstances is done by more senior staff than envisaged by the Bill.

Mr. Butterfill

If someone applies to a building society for a mortgage, is it unreasonable for the building society to ask to check the person's status with his bank? Is that an intrusion into his privacy? Is there not an analogy with someone asking for state benefits and being asked whether a check can be carried out with his bank? Is that really such an erosion of people's private rights?

Mr. Webb

When one applies for a mortgage, the information that is requested is limited, specific and relevant. On the occasions when I have applied for a mortgage, I do not remember being asked for copies of my bank statements. I might have been asked to state what my salary was and I might have been asked to produce mortgage statements from other lenders, but not for all sorts of extraneous information. One of my concerns about the powers in the Bill is that the temptation to do a bit of fishing is considerable.

First, there will be the question about whether there is an account, and perhaps a question about the balance, then the investigating officer might think, "Maybe we should look a little further. We might find something else." That must be a huge temptation. There is no cost to the civil servant concerned. By pursuing the matter as far as possible, he might turn something up and get a pat on the head for finding something, even if that does not happen nine times out of 10.

Mr. Butterfill

The hon. Gentleman is generous in giving way again. Perhaps there is something wrong with the way in which disclosure is dealt with at present. He may not be aware that whenever he asks for any form of credit—for example, from a building society, or for a loan to buy a new car—he will sign a form that entitles the lender to make all sorts of inquiries about him, including his status with his bank.

Mr. Webb

There is a difference between my status with my bank, and copies of my bank statements for the past six months. The question is how far it is legitimate for the state to go in pursuing suspected fraud. How strong does the suspicion need to be? It is the lack of scrutiny that worries me.

We will not oppose Second Reading—I shall not keep the House in suspense any longer—and we think that it is legitimate for the state, in tightly controlled circumstances, to check some of the information that it might need to corroborate, but we want to be sure that there is independent scrutiny, that the investigation is not carried out on such a massive scale that scrutiny is impossible and that the information requested is specific and limited, not just general fishing.

Until the Bill went through another place, there was a clause stating that the people who would be scrutinised would include those in a category more likely than others to commit fraud. The fact that the Government even thought of writing that in is extremely worrying. I do not know whether they had in mind people who looked a bit shifty or people with funny accents.

I am not sure what the criteria were to be, but the fact that the Government thought of including a clause that would allow them to examine the bank accounts and so on of people who seemed more likely than others or who were statistically more likely than others to commit fraud suggests the sweeping ambitions that the Government had. I am delighted that in another place the Government responded to criticism and reined in those ambitions, but I am concerned that the ambitions existed in the first place.

Mr. Willetts

The best that Ministers could come up with was the suggestion that the measure would attack window cleaners. Perhaps, with an election looming, they were so worried about losing the window cleaner vote that they abandoned the idea. However, that was the only explanation that the Government could come up with when challenged on the point that the hon. Gentleman rightly makes.

Mr. Webb

That suggests entirely new angles on laundering, I suspect.

We are anxious that the powers should be independently scrutinised by senior staff and should not be on such a large scale that they get out of hand. I spent a riveting time this afternoon reading the code of practice. It is not just civil service staff but subcontractors who will potentially have those powers, so the powers could be exercised at one more remove. That a further source of concern to us.

I have already asked what assurance there was that the information requested would be the minimum that was needed. The incentives are all wrong. The incentive for the member of staff must be to ask for as much as possible, because in one case out of 10, 100 or 1,000, something extra will be detected. How much intrusion should be balanced against that? We are worried that there are not sufficient controls to prevent such fishing expeditions.

There are questions about who will bear the cost. Often, the actions of central Government incur costs for local government, and local government never gets reimbursed. Under the Bill, local authorities will have to supply information. Will that be just another burden on local authorities, or will the Government meet the cost?

Have the Government considered a possible side-effect of the Bill? As a result of the power of the state to gain access to people's bank accounts on a much larger scale than ever before, people may stop having bank accounts. Have the Government assessed the likelihood of that? Given that one of the Government's strategies is to create a universal bank and to get more people to have accounts, is there a danger that if people think that their financial affairs are not private and their transactions are not secure in a bank account, fewer will have bank accounts? I should be grateful for the Minister's response.

I mentioned earlier my concern that the Government are not using their existing powers to crack down on housing benefit fraud. In an intervention, I asked the Secretary of State what he thought of the fact that housing benefit fraud detected by local authorities had gone down between the second and third years of his Government. He said that the Government were trying to do more to stop fraud in the first place, but I was not convinced that that explained why local authorities were finding less fraud.

My reading of the situation is, first, that local authorities have not been supported enough in their anti-fraud work, and, secondly, that the Government have not used the powers that they have to make sure that local authorities are doing more. The hon. Member for Havant (Mr. Willetts) mentioned, rightly, that the Government's existing powers have been used only once, against Northampton council. That local authority detects 1 per cent. of benefit expenditure in fraud. The most successful local authorities detect 5 or 6 per cent. of expenditure in fraud. If the worst performing authorities could be brought to the average of the best, the Government could save £400 million or £500 million. That seems a credible goal for a two or three-year period. The key question is why the Government have not used those powers more. The Secretary of State did not answer when the hon. Member for Havant asked about the matter, but I hope that the Minister of State will do so. Of course, there are huge variations in local authority anti-fraud activity. Detected fraud has fallen, but there is not much evidence to suggest that the Government are using existing powers before they ask the House for more.

I should like to refer to one further aspect of the Bill about which the Liberal Democrats are perhaps especially concerned—the effect of the benefit sanctions. I spoke about war pensions in a slightly hurried intervention on the Secretary of State. I wanted him to deal with the issue before he finished his speech. Bizarrely, a "Two strikes and you're out" approach is applied to fraud in respect of war pensions, but not to fraud on retirement pensions. When Baroness Hollis was asked why retirement pensions were not included in the Bill, she gave the reason that there was virtually no fraud in respect of such pensions.

Does the Minister of State believe that serious fraud exists in connection with war pensions? It would be helpful for an answer to be put on record. If no serious fraud is committed and it is accepted that Britain's war pensioners are decent, law-abiding people who should be getting the money, the inclusion of war pensions in the Bill is insulting. If he is considering tabling amendments, he should be aware that knocking war pensions out of the Bill could remove a potential source of offence at no cost to the Government. War pensions should not be included in the Bill.

What of the people who are sanctioned? Few of us will have any sympathy for such people, as they will have attempted twice to defraud the benefits system. However, we must consider the appropriate punishment for such people. For example, is it appropriate to punish their dependants, who are likely to be children? The Minister of State will say "We're not touching the child rates; only the personal allowances", but that still reduces the total amount that is coming into the household. Anybody who has tried to live on income support for any period will know that income will already be at a minimum. The Bill can take somebody who has committed two offences below income support levels, along with the rest of the household.

In another place, the Government were challenged by my noble Friend Earl Russell about research evidence in that respect. What research have they undertaken into the effect of the benefit sanctions on those who are sanctioned? What does the Bill do to such people and to their dependants? The short answer is that the Government do not have a clue. In fact, they do not care. Whenever they are asked such questions in the House, they say that people should not commit fraud anyway.

We must consider the appropriateness and proportionality of any punishment. As I have previously reminded the House, when people are convicted of murder, we still feed them, clothe them and put a roof over their head. The Bill requires people who have committed benefit fraud twice to live below the poverty line for a sustained period of punishment. How can it be appropriate that although somebody who has committed a severe crime is guaranteed the human rights of food, clothing and shelter, somebody who has done something far less serious can be denied those basic rights?

The Government talk a lot about rights and responsibilities. I do not want to take away from anyone the basic human rights of food, shelter and clothing, especially when he or she has committed a crime that is far less serious than those for which imprisonment is the usual punishment. There is a serious danger, however, that that is what the cumulative effect of the Government's benefits sanctions will mean. The 40 per cent. sanction mentioned in the Bill can be applied on top of another 40 per cent. sanction. That may happen in only a few cases, but such measures are getting out of control. The Liberal Democrats believe that the Government should not introduce any further benefits sanctions until they have commissioned proper research into the effects on those who are sanctioned.

We are concerned about the Bill, but we will not stand in its way, as we share the commitment to tackling fraud. However, the response to fraud must be proportionate, independently verified and properly controlled, and we have yet to be convinced that those conditions will be satisfied.

7.44 pm

Kali Mountford (Colne Valley)

I have been a little surprised by this evening's debate. There seems to be so much conciliation that Member's are acting as though there is no opposition outside the House to arguments about the need to deal with fraud, but that is not my experience. In a recent debate outside the House, I was alarmed to find that a large group of people believe that those who commit fraud have some excuse for doing so. Often, the defrauders themselves believe that they have an excuse. That is why it is worth taking a moment or two to reflect on the social effect of fraud within the system, and to consider why it should be dealt with by the Bill. If we failed to introduce such a measure, we would be failing to deal with the arguments that are advanced outside the House to try to justify benefit fraud.

One of the first obvious facts is that social security fraud is a misappropriation of public funds. Such an abuse must always be wrong, although people sometimes try the excuse that life is [...]rough for those on benefit. However, such arguments do not recognise that life can be tough on all those who receive benefit, most of whom do not commit fraud. I it accept that people sometimes make mistakes. Indeed, I often met such people in my previous career and in my work in the voluntary sector, but I know that not all those who commit fraud will be in that position.

Recently, I visited the ONE centre in my constituency with the Under-Secretary of State for Social Security, my hon. Friend the Member for City of York (Mr. Bayley). I was impressed by the way in which the centre deals with benefit and saw how its methods can prevent some of the mistakes that are made. I also saw how well information technology was used and how successfully staff related to their clients. I noticed that clients were very responsive to the information, help and support that was given by ONE. Such help can go some way towards dealing with so-called mistakes. If we get the information right in the first place, we might help the whole process. I am pleased to have seen at first hand the benefits that can be provided to all concerned.

However, such schemes do not deal with the offenders—I call them offenders—who are persistently ripping everybody off. I think that the hon. Member for Havant (Mr. Willetts) mentioned the advertising campaign that has been conducted. I have seen people such as those depicted in the advertising campaigns in my constituency. Indeed I, I have received complaints about them and the effects of their actions. There is a far louder cry from those who deplore their behaviour than from those who support it, but I believe that we must nevertheless deal with the arguments of those who try excuse themselves or others from responsibility for such actions.

In the late 1970s, the early 1980s and towards the 1990s, when I was working in the Department, I often thought people on benefit had a very hard time. Jobs were hard to find and things were tough. When 3 million people were unemployed benefit was inaccessible and circumstances were more difficult, one could feel a little sympathy for people who were guilty of social security fraud. Even at that time, however, I would have said, "Look, there are hundreds and thousands of others in the same town or region as you. They, too, may have lost their job in the steelworks, in mining or in their local factory, but they are not doing the same thing." Such actions are not excusable, even in such tough circumstances, but there might at least have been some compassion when times were hard.

In 1997, at the beginning of my time in the House, the unemployment rate was 4.9 per cent. It is now down to 2.5 per cent. It was low in 1997, but it is now very low indeed, and it is continuing to fall. What excuse can a person in my constituency have for benefit fraud? There are more jobs, so why are such people finding it difficult to find work?

Mr. Butterfill

I am listening attentively to what the hon. Lady is saying, and I agree with a great deal of it. Does she accept that people who commit fraud against the benefit system can rip off not only their fellow citizens, but charities too? A number of charities rely on an almonry process, and many of them rely on eligibility for state benefits to decide whom they should help. I am a trustee of the People's Dispensary for Sick Animals, which does exactly that; it gives fret veterinary care to people who are in receipt of state benefits. People who fraudulently claim benefit often fraudulently obtain the free veterinary care that we provide. Many other charities operate on the same basis, which means that benefit fraud can be a rip-off of the whole of society.

Kali Mountford

I agree with the hon. Gentleman. There is a domino effect when people start to commit fraud. My experience is that somebody will often start with a simple mistake, which is why the ONE project is so important. Many people make that one simple mistake, find that they get away with it and then move on to commit more serious breaches. The collusion with others to rip us off in such a manner is outrageous. In that respect, I should like to cite the "Kilroy" programme, although I hope that this is the first and last time I do so. Only a week ago, it featured a debate —which I saw—in which people defended such action on the grounds that they might want to buy Adidas shoes, for instance. They suggested that it was all right for them to act in that way, given the pressure to maintain a certain standard of living in today's society.

I would say to those people that we do not necessarily have a right to own goods of a particular brand. I think we all agree that there is a right to be decently clothed, fed and housed, but it seems that some of us have gone beyond that. It is regrettable that these to whom I refer were willing to act in such a way, and then to defend their actions.

I thought it worth pointing out tonight that fraud is wrong, and describing its effects, but I also want to say something about the employers who collude in such fraud. A measure of discontent has been expressed to me by employers who fear being involved in more red tape and bureaucracy, and having to deal with the Department more than they would wish to. I understand that—I have never encountered an employer who wanted to deal with any Department if he could avoid it—but I hear another view from employers in my area.

Let me cite two types of employer in particular, involved in industry and services respectively: those in construction and allied trades, and those working in private taxi hire companies. Both tell me that they know what is happening in another company further down the road, or in the next valley—the information is never specific enough to enable me to deal with the problem. I am told that certain people are picked up in the morning to be taken to work. Apparently, all the neighbours know about this—certainly those who art in the pub or the supermarket, or outside the post office

The employers I have mentioned are upset about such people, because they are trying to operate their businesses on a level playing field. They are making national insurance contributions for their work force, and dealing properly with tax, health and safety regulations and all the other Government arrangements. They are working in a fair marketplace, in which they must price their services and goods appropriately. Meanwhile, unscrupulous employers are colluding in benefit fraud. As the hon. Member for Bournemouth, West (Mr. Butterfill) said, there is a domino effect: not just charities but the whole economy could be ripped off by such behaviour.

That brings me to another part of the Bill that I consider important—that on "two strikes", and how we are to deal with persistent offenders. I think that more support is available now than there used to be: there are more opportunities in an economic context, and advice is more available in the system than I have known it to be in my 22 years of dealing with benefits. I do not consider that mistakes that can have that domino effect on behaviour are as excusable as they seem to have been in the past.

Where does this take us? People to whom a mistake may have been pointed out in the first instance may have to repay overpaid benefit; if it is found that a clerk in the benefits office, or elsewhere, did not spot the mistake, those people may not even be asked to repay the amount. On a future occasion, some other mistake may occur. Again, information may be given outside a public house, or in a post office or supermarket. Those are the places where people seem to be given advice on benefits. I urge such people not to take advice anywhere but in the office with which they are dealing.

I meet people who say, "I was told by Fred Bloggs that if I worked only a certain number of hours a week, or earned only a certain amount, I would not have to declare the amount. I made an honest mistake." I tell them that, under the system as it is now, that excuse is not credible. Those in regard to whom we might want to apply a "two strikes and out" arrangement will have had quite enough connection with the system as a whole to know that their behaviour is wrong. By that time, they must have received sufficient advice to be aware that their actions would result in certain consequences.

The hon. Member for Northavon (Mr. Webb) asked whether the "two strikes" provision was over-harsh. I agree with him that the benefits system contains a number of sanctions, intended both to deter and to punish; but another form of punishment is imprisonment, which is also available in the system. Surely it is better for the family of an offender for the offender not to be removed but—if he or she is working and continuing to claim—to formalise the arrangement, and find a proper job.

In all our debates the hon. Gentleman has shown himself to be a compassionate man, and I have some sympathy with his view, but I am worried about the problem affecting families. In generations of families, reliance on the so-called alternative economy has become the norm. We must break that cycle, and if we impose no sanctions of any kind—or if the alternative sanction is imprisonment—I am not sure that we will do families any more good than we would by imposing the sanction of reduced benefit. I think that 13 weeks is the standard period involved in such sanctions. It has proved to be of some value for a number of years, and I think it appropriate.

Conservative Members, and my right hon. Friend the Member for Birkenhead (Mr. Field), have expressed criticisms, suggesting that sanctions and controls could be taken further—into the area of organised crime. The Bill is not designed to deal with organised crime, but I welcome the work that has been done with regard to fraud overseas. When I worked in the benefits system, I dealt with reciprocal arrangements involving people coming here from overseas and clients going overseas, either for a holiday or, ostensibly, to look for work and to review their arrangements.

It is remarkably difficult to keep track of such people, and to know exactly what is happening. I have received reports of people setting up tents and caravans while ostensibly searching for work, having already found work that they are not declaring. I am pleased that the Bill contains provisions to deal with that. I have some sympathy with the idea of extending the provisions to international crime—the sort of fraud mentioned by my right hon. Friend the Member for Birkenhead—and to the same kind of crime in this country. I have heard of examples, and I think we have no excuse for not dealing with such matters now.

I welcome the Bill and the present spirit of conciliation throughout the House, although at times I felt we were almost on gladiatorial terms. I also thank the hon. Member for Havant, if I thank him for nothing else today, for reminding me that the Minister of State, my right hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker), will soon be leaving us. I can hardly believe that. I experienced a Freudian moment in which I did not want to remember it, and I was rather surprised to be reminded of it today.

I have not been in the House for long; I have been here for barely four years. In that time, however, I have had several opportunities to work with my right hon. Friend, and I admire him greatly. I do not want to make him blush any more than he has already, for he is a modest man and is probably sick of our going on about this, but having received the reminder, I do not want to miss the opportunity of telling him what a pleasure it has been to work with him, how much I have learned from him and what a remarkable parliamentarian I think he has been—not just in my four years here. Like the hon. Member for Northavon, I knew who was and was not worth watching when I was not here, and my right hon. Friend was always the man to watch.

8 pm

Mr. John Butterfill (Bournemouth, West)

There is a danger that this debate may develop into a eulogy to the Minister of State, Department of Social Security, the right hon. Member for Birmingham, Perry Barr (Mr. Rooker), but I would like to add my personal congratulations to him on his parliamentary career, because this may be the last opportunity that I shall have to do so in a debate. What he has done in his present Department has been quite outstanding.

More particularly, I remember the right hon. Gentleman in his role on housing, a period when he and I crossed swords on more than one occasion. The contribution that he has made to the development of housing policy—in particular, to the maturity with which the Labour party now approaches the issue of the private rented sector, and to the recognition of the contribution that it can make—has been extremely valuable. 1 should like to take this opportunity to thank him, and to congratulate him on behalf of us all on that element of his work.

It is always difficult to speak after the right hon. Member for Birkenhead (Mr. Field) and I am sorry that he is no longer in his place. He and I tend to agree on many of the issues on which we jointly speak: on pensions, for example, and other matters. It is particularly difficult for me to speak after him this evening, because he said just about everything that I wanted to say in my own speech. I should like to pick up some of the points that he made, particularly the emphasis that he placed on the pernicious influence of organised fraud on social security benefits.

According to the raw statistics on national insurance numbers, which were discussed earlier, there are some 82 million national insurance numbers, but only 48 million people of employable age. That leaves a difference of 34 million. It is difficult to believe that that difference could be entirely due to factors such as the national insurance numbers given to people under employment age for various reasons; the national insurance numbers that are continued in respect of deceased persons for certain reasons; and the national insurance numbers that are given to temporary foreign workers.

That last factor relates to a legitimate activity. In my constituency in Bournemouth, there are a large number of language schools. In the summer, a great many students come over to attend the schools, mainly from other parts of the EU. Many of them want to work part-time while they are here, as they are perfectly entitled to, as citizens of the European Union. They get a national insurance number, they retain it and it remains on the system. That is perfectly appropriate. However, it is difficult to believe that those rather limited examples, which may explain some of the difference, could amount to a difference of 34 million national insurance numbers. This is a serious problem, and it needs to be addressed.

The Bill goes some way towards addressing those issues and helping to reduce the clear element of fraud demonstrated by those numbers, and to that extent I welcome it. There has been some dispute about the level of fraud, but most people seem to agree that it is worth about £7 billion a year, although it is difficult to quantify exactly. These are huge numbers, and the burden that that fraud places on ordinary, decent, hard-working people is colossal. That is unfair on the many people who pay their taxes.

Many of my constituents are elderly, and a large proportion of them are retired. Many of them continue to pay tax, but in doing so they are often supporting people who are deliberately defrauding the system: the people about whom we are concerned. We are not so concerned about those who make innocent errors, or who find the system extremely complex. Most of us have had people come to our constituency surgeries and say, "I just didn't understand. It was all too complicated, and I made an error when I filled in the form. I didn't know I was supposed to let them know when certain events occurred and I failed to do it."

Many of my elderly constituents are confused about the system and they make innocent errors. They are not the people about whom we are concerned. Indeed, the Bill proposes ways of mitigating the effect for those who make innocent errors, even more than once. We are, however, concerned about those who deliberately set out to defraud the system and their fellow citizens. Given the scale of the fraud, the effect that it has on everyone else, and the way in which it denies us the opportunity to spend public money on other things that we all consider desirable—health, education or whatever—there is an urgent need to tackle the problem.

I therefore welcome the additional powers in the Bill to obtain information. I also welcome the ability to use electronic access to data, although I shall say a little more about that later. There are some concerns about those additional powers, especially about how they will operate with those who will be providing a co-operative system with the Government.

We know from the responses of organisations such as the British Bankers Association and the Council of Mortgage Lenders and from the telecoms companies and others that they are worried that they will have to bear an irrecoverable financial cost as a result of the information that they provide. They also feel that it is a little unfair that they operate systems now at considerable expense, and that, by co-operating with the Government, they will get no benefit in return.

The suggestion by the right hon. Member for Birkenhead that we should participate in organisations such as the credit industry fraud avoidance system is a good one. That would make it much more palatable for those who are co-operating in this way. Let us make no mistake: extremely sophisticated systems are now available that can reduce fraud dramatically. The telecoms companies have now put in place very sophisticated computer-based systems that can detect up to 80 per cent. of fraud. It would be a great advantage to everyone if we could get close to even half that percentage in relation to social security fraud through the use of those systems. The Government will need to look carefully at the way in which the agencies are reimbursed for the costs that they will undoubtedly bear in co-operating.

Similarly, I welcome the ability to co-operate, albeit limited, with overseas authorities. There is no doubt that much of the organised fraud is transnational. Gangs of people are being brought into this country, and they are defrauding the system. Organised criminals are bringing in so-called asylum seekers, and exploiting them and the benefit system. I want those people dealt with.

I do not like the idea that people operate middleman agencies to place genuine—or possibly genuine—asylum seekers on behalf of one authority in another. In Bournemouth, a lot of people are placed in hotels and guest houses on behalf of London and Kent local authorities through a middleman agency based in Eastbourne. It takes a cut of the money that the Government and the taxpayer provide to support those people, but we did not institute such support payments for the unfortunate people who may be genuine asylum seekers in order for some middleman company to take a cut on the way. I hope that that is one of the first problems that we will start to eliminate by making the whole process illegal; and if the Government can amend the Bill to achieve it, they will do a service to the whole community.

Although I welcome the Bill, I have to say that it is too little, too late. The Secretary of State referred to the ancient computer systems that the Government inherited when they took over in 1997. There is no doubt that some were pretty old, but the problem is that systems age very quickly. Those that we bought for ourselves or our children only three or four years ago look terribly out of date today and no doubt the ones that we are buying this year will look even more out of date a year from now. The whole industry is moving at an incredible rate. We must therefore continually update systems with the best possible technology that we can afford—but I am not sure that the Government have done that.

Before Christmas, I visited my local Department of Social Security office, following which I wrote to the Secretary of State. I had the courtesy of a reply from his colleague, the Under-Secretary. It is worth pointing out the difficulties under which such offices labour and about which 1 wrote to the Secretary of State in November. The breakdown of the national computer system caused enormous difficulties and obviously contributed to making fraud easier.

Furthermore, inadequate information technology systems are in place. The Benefits Agency has the following: an income support system, a personal details system, a jobseeker's allowance system, a pensions system, an incapacity benefit system, a departmental central index and a repayment depository. With the exception of the personal details system, none is capable of interfacing with any other. I accept that that was the case when the Government came to office four years ago. but it is still the case today and four years is a long time, particularly in respect of updating IT systems. The Government have been slow to deal with a problem that was getting progressively worse.

The filing system that may be needed to combat fraud is even more worrying. To this day, the one in my local office is paper based. Furthermore, only a limited number of records are held in Bournemouth; the rest are sent off to remote storage in Devon. If people need access to the system to check records, papers have to be transported from Devon to Bournemouth.

How long would any private financial services company survive with systems and filing systems of such antiquity? We know the answer: it would not survive at all. As custodians of the public purse, the House and, in particular, the Government have a duty to ensure that the systems are such that they protect the financial interests of our citizens, but they do not do so at the moment.

The Under-Secretary's letter to me said that the Chancellor announced that £1.87 billion over the next three years would be spent in modernising the Social Security system, including the replacement of Information Technology systems. So over the next three years, part of that £1.87 billion may be spent to update IT systems. She continued: The new IT will help reduce the cost of benefit fraud and error"— we must not forget error— by over —1 billion a year by 2005/2006. The money is unlikely to achieve any savings, nor will it be spent during this Government's first four years. It will not even be spent in their first six years, but we may be there by the seventh and we may realise some benefits by 2005 or 2006. There is a broad cross-party consensus here, but the Government have to bear some responsibility for the fact that it will be 2005 or 2006, on their own admission, before any improvement in IT systems helps us to prevent benefit fraud.

The problems of organised crime described by the right hon. Member for Birkenhead occur in my own constituency. In my letter to the Secretary of State, I pointed out that areas such as mine, which have an unusually large transient population, are particularly prone to such difficulties. Some people move to the holiday areas in winter, when accommodation is available, and then move on. Others are attracted there in summer by casual work in the tourism industry. There is a high turnover of people and that, of itself, allows for fraud and organised fraud.

Believe it or not, there are those who organise transient workers. In areas such as mine, where that tends to be a problem, we need to apply more resources. Such areas also contain large numbers of asylum seekers and there is no doubt in my mind that in many cases organised gangs bring people in and then "employ" them. We have seen examples of that reported in the national press—it is a pernicious activity, because they are organised into crime, prostitution or sweated labour that pays poor wages, yet the maximum benefit possible is claimed for them by people who can only be described as gangmasters.

For all those reasons, we must concentrate resources where such activity occurs, but the Bill will not achieve that. Although there is a national problem, there are particular local difficulties in certain towns and cities in the United Kingdom. We must achieve a determination to target resource where it is most likely to bear fruit, but there is no clear evidence that that is what the Government intend. I welcome the Bill and the degree to which it will contribute to solving the problem, but we must consider a lot of other measures for the elimination or substantial reduction of benefit fraud.

8.20 pm

Mr. Paul Goggins (Wythenshawe and Sale, East)

If I fail to pay a compliment to my right hon. Friend the Minister of State at this point in the debate, he and other hon. Members may believe that I am snubbing him. His most outstanding characteristic, which he has displayed over many years in the House, most recently in government, is his ability to keep his head connected to his heart. That has been immensely valuable to his constituents and to the country.

I shall make only a short contribution, but I want to convey the view that my constituents have expressed to me over the past four years. They say that they are fed up with having approximately £6 million a year stolen from them. If we accept the reasonable assessment of £4 billion of fraud annually, £6 million would constitute the share that they were paying. That is enough to give every child in my constituency an annual grant of £200, with plenty left over to support a range of other activities. The amount is therefore substantial, and my constituents feel strongly about it. Most of them play fair most of the time, and they earn their cash the hard way. They are fed up with the few who cheat.

My hon. Friend the Member for Colne Valley (Kali Mountford) referred to an old argument, which sought to justify working on the side. In the mid-1980s, unemployment pushed 4 million at times, it was impossible in many parts of the country to find a job, benefits were inadequate and many people were forced to live below the poverty line. It could be argued that it was okay then for people to work a fiddle to feed their families and keep their heads above water.

In all honesty, I am pleased that I never had to make that choice. I would not have been at ease in choosing to work a fiddle for two reasons. First, I am old fashioned enough to believe that it is wrong to take something that does not belong to me. Secondly, I am perhaps enough of a politician to believe that if the system is wrong, we should try to change it rather than cheat it.

I have never supported the old argument that I outlined, but even if it were justifiable sometimes, it does not apply today. Unemployment is less than 1 million, and there are more job vacancies than people who are registered unemployed and claiming benefit. We have a new deal for young people, older workers, lone parents and disabled people. There is new investment in training and a range of other actions that are intended to make work pay. They include the working families tax credit, the minimum wage and the 10p starting rate of tax. The Government have made it possible to work, and they have made it pay to work It is therefore right to deal with those who cheat the system.

In his report entitled "The Informal Economy", Lord Grabiner estimates that at any one time approximately 120,000 people work and claim benefit. In every case, somebody—a neighbour, a relative or colleague—knows about it. We must therefore change the culture. Earlier, Conservative Members commented on the advertising campaign, but together we must try to find methods of encouraging people to feel sufficiently confident to articulate what they know to be true: it is not acceptable to turn a blind eye, pretend not to know and try to justify such actions. It is equally unjustifiable to pay people to do foreigners and avoid paying VAT. That also constitutes unacceptable fraud.

Like other hon. Members, I hear a steady stream of tales from people in my constituency about those who are apparently too ill to work but happen to be fit enough to climb a ladder and paint the house. Such people are blatantly working and claiming at the same time. Lord Grabiner estimates that 40 per cent. of income support and jobseeker's allowance fraud arises from undeclared earnings. The Bill is important because it serves notice that such practices must become a thing of the past.

The Bill has another important purpose: restoring confidence in and respect for the welfare system, which most people want to support. However, they want the proceeds to be used honestly. The measure introduces new powers and there has been some consensus about exchanging information with banks and agencies in other countries, sharing information with those who administer housing benefit and council tax benefit, allowing electronic access and, of course, tackling unscrupulous employers.

Another crucial aspect of the Bill is that it will penalise those who are caught fiddling twice in three years. Clause 9 is important because it protects the dependants of those who are caught out; there is no reason for them to suffer. However, those who flout the rules should suffer.

There is much talk inside and outside the House about the cost of fraud to the taxpayer and the savings that can be made. The Government are taking action against fraud, and I take slight exception to the n marks of the hon. Member for Havant (Mr. Willetts), who referred to the number of sanctions against benefit fraud. He said that the current average was 10,000 a year. However, he failed to include the 10,000 more people who receive cautions and penalties as an alternative to prosecution. Their fraudulent behaviour is also tackled. The figure is therefore 20,000 a year, not 10,000.

Like all social security measures, some of the provisions are complicated. I am sure that the Standing Committee will have an interesting time debating the Bill's detail. However, all hon. Members should support the Bill because it is a standard bearer for honesty, which we should all try to protect.

8.27 pm

Mr. Peter Lilley (Hitchin and Harpenden)

I join other speakers in paying tribute to the Minister of State. He is one of the rare Members who leave behind them an eponymous provision; in this case, the Rooker-Wise-Lawson amendment, for which the right hon. Gentleman was famous. He has made his mark through a combination of pugnacity and conviction. He has been willing to stand up to his party when he believed that it was wrong, and he was one of the few in the Labour party who had the wisdom to perceive the virtue of selling council houses. However, he was unable to persuade his party of it. That left us a clear run, and I am therefore grateful to him for failing to convince his party, much as I am impressed by his foresight.

The Minister of State is also unusual because the hon. Member for Northavon (Mr. Webb) used to say that he wanted to resemble him when he grew up. When he grows up, he may well resemble the right hon. Gentleman. I am not being rude to the hon. Member For Northavon, who has the great advantage of looking eternally young.

I also pay tribute to the right hon. Member for Birkenhead (Mr. Field), who is no longer in the Chamber. He always plays a distinguished part in debates on this subject, and had the courage to say things about the importance of tackling fraud and abuse that were unpopular with his party, and when it was not fashionable to do so.

The hon. Member for Wythenshawe and Sale, East (Mr. Goggins) brought to this debate, as he brings to all debates, a combination of compassion and conviction. He has sufficient integrity to recognise that it is important to distinguish between those who deserve benefits and should receive them and those who are fraudulently abusing the system. Although the hon. Gentleman and I approach the problem with different practical remedies, we both want the money to go to the people who need it and have a right to it. We are conscious that every penny taken in fraud means a penny less to help those in need.

I am afraid that I cannot extend my general paean of praise to the Secretary of State for Social Security, whose speech I found, frankly, disappoiniing. It might have passed muster as a contribution from a first-time Labour candidate in a hopeless seat, reading out a misleading brief from Walworth road, but it did not really rise much above that standard.

I want to put the Bill in context. It is a small contribution to the important subject of tackling fraud—a major aspect of welfare reform that is centre stage in most developed countries, and rightly so. Social security is the biggest thing that modern Governments provide. In this country, spending on social security has, over 50 years, grown twice as fast, year in, year out, as national income. It has been taking a rising share of our national income and has been the main factor in driving up the burden of taxes and charges on those in employment.

The previous Government introduced a series of reforms that, for the first time, put social security spending as a share of national income on a downward path over the medium and longer term, giving scope to reduce taxes and increase expenditure on other matters. I fear that much of the momentum of those reforms has been lost under this Government. They have maintained some semblance of a downward movement in the share of national income going to social security only by redefining a lot of things previously counted as social security as negative taxation, in the shape of credits, or by taking them off the budget, as in the back to work programmes.

If we are to tackle the problem of growth in the social security budget, we must understand the source of the growth. It is not primarily because of increased generosity in the level of benefits over the years. Instead, it is due, very largely, to the increasing number of people claiming benefit and staying on benefit for an increasingly long time.

There are a variety of reasons why more people are claiming benefits, and claiming them for longer. Many of them are legitimate; some are the direct and intended result of Government policy. We are proud, as a party, to have extended the eligibility to disability benefits to a category of people previously not entitled to them. That inevitably brings them into the welfare system. I have always thought that if there is one group of people whom we should be proud and pleased to help through the social security system it is those who are, through disability, unable to share in the general prosperity of the marketplace.

We must recognise that one reason for the growing number of claimants is a growing culture of fraud and abuse. It has happened gradually, over the decades, almost without perception. It certainly was not the deliberate intention of any Government.

It seemed to me, having reached that stage in the analysis, that the previous Government could tackle the problem of fraud and abuse only by measuring it effectively. The Secretary of State repeatedly said, in a tone of disdain, that we did not even start to measure the level of fraud until 1995. That is like saying that the inventor of the jet engine in 1945 did not use jets before he had invented them. No one else had invented them either. It is like saying that the inventor of the wheel had not used the wheel before he had invented it.

I imagine that, like me, all my predecessors asked their officials how much fraud there was in the system and were told, "How can we possibly tell you that?" Fraud is a victimless crime—at least, it is a crime without an individual victim, so it is not reported. It is a crime that, by its very nature, is concealed. How can anyone know how much fraud is in the system? No Government in this or any other country, I was told, have ever been able to measure the level of fraud.

Indirect estimates have been made of the level of fraud. Similar estimates of the size of the black economy, for example, take into account the number of bank notes in circulation. No direct measure of fraud had ever been made, which I found extremely unsatisfactory. It just so happened that in one of my previous careers—when, as my mother put it, I had a proper job—I was involved in market research, so I was familiar with the idea of surveys. It also happened—again by chance—that I found a reference in a Dutch journal on social affairs to a blanket attack that had been made on all benefit claimants in one part of a small Dutch town. Everyone had simply been hauled in to be assessed for their entitlement to benefit because it was thought that fraud was so rife in the area. I cannot remember the results, but I thought that if we could take a statistically representative sample of claimants and investigate their conditions in great detail, we could establish the level of fraud.

Initially, there was great resistance to the idea, including from the then Labour Opposition, who thought it would involve summoning innocent people—sending in a friendly local benefit fraud investigator to treat them as though they were potential fraudsters to establish whether they were.

When we introduced the system, we were worried that it would produce a negative and hostile reaction. I am happy to say that it did not. When we set up the panels of 1,000 or more claimants on each benefit, established all the details that we held on them internally and then visited them, often unannounced, they were only too happy to help in the vast majority of cases. The innocent people were happy to help. If they inquired why they were being singled out and what was going on, they were told that it was part of a measure to establish the level of fraud and abuse. They were keen to help because they recognised that if other people were abusing the system, it was their money that was being taken—it was society's money that was being misused. There was virtually no resistance to the area benefit reviews, as they became known when we set them up.

The reviews were extremely helpful and enabled us to establish the aggregate amount of fraud by benefit, by type of fraud and by characteristics of the claimant. Above all, they gave us a benchmark of the level of fraud for each. Once we had set up the system, we could measure the success or failure of Government measures to reduce the growth of fraud and, we hope, to reverse it and bring about a decline in fraud.

This Government have by and large continued those reviews. Apparently, they stopped them for family credit on the assumption that there would be no fraud in the working families tax credit—a ludicrous assumption, since the equivalent tax credit in Canada abandoned because it was found to be so prone to fraud. The Canadians have reverted to the equivalent of family credit. In other areas, the Government have continued regular assessments of the level of fraud—they could scarcely do otherwise. The results have not been flattering.

In his opening remarks, the Secretary of State—hoping that he could bamboozle us—claimed that the level of fraud had gone down. In fact, the figures show that in the past two benefit reviews the level of confirmed fraud in income support and jobseeker's allowance has risen. He was able to claim a fall only by including errors. He is the first person who has pleaded errors to excuse fraud, or the failure to reduce it.

Undeterred, the right hon. Gentleman then claimed—he is nothing if not brazen—that the fall in fraud and errors was significant. However, the House of Commons Library has produced a report in which it explicitly says that the fall is not significant. The Public Accounts Committee considered the matter and noted that even if the rate is—as the Government claim—edging down, it is not doing so to a significant extent.

The Secretary of State was mistaken on that front, too. It is sad that he is not man enough to admit his error and acknowledge to the House that benefits surveys confirm that fraud has risen. Any fall in fraud and errors combined is not statistically significant. Indeed, although the estimated total of fraud and error for income support and jobseeker's allowance is £993 million, the Government say that the figure is really somewhere between £892 million and £1.096 billion. That is a wide range, so to suggest that a fall of about 6 per cent. is statistically significant is not to use that term as it is normally understood.

If the Government had failed only in that respect, it would be serious enough, they have also missed their targets for identifying and detecting fraud during most of their years in office—indeed, in every year. I think they may have met their recent targets—probably by making them less stringent. They have also abolished, or abandoned, several measures that we introduced to raise the profile and change the culture of abuse.

The Government abandoned the spotlight on fraud campaign, whereby all the agencies in an area combined, in a highly publicised way, to identify and attack fraud to bring home to everyone that we were serious about tackling it. That has gone by the board.

The Secretary of State has downplayed the beat-a-cheat hotline on which people could report evidence of fraud to the Department. As my hon. Friend the Member for Havant (Mr. Willetts) pointed out, the DSS no longer even includes the hotline number on the ill-designed advertisements that supposedly highlight its willingness to tackle fraud. Indeed it was not until I tabled questions on the rate of response to the hotline that the Government were prodded into reviving some publicity for it, to try to increase the rate.

Overall, the Government show clearly that they are soft on fraud, which is why fraud is rising again. However, because they are above all a Government of spin doctors, they know that they must convince the electorate that they are serious about these measures. That is why they have introduced the Bill just ahead of the election. Some symbolism is required to demonstrate their concern to stop social security fraud. That is also why they are spending a great deal of taxpayers' money on a rather ineffectual—even by their own measures—advertising campaign; it is being mounted for electoral rather than operational purposes. Indeed, I am surprised that it got past the Cabinet Secretary—the head of the civil service—who polices such matters and who would, I am sure, have had words with us if we had proposed heavy expenditure on such dubious advertising just before an election. However, perhaps he knows that an election will not be called, so thac is all right.

By contrast, when we were in power, we systematically set about making changes to try to get on top of the problem of fraud. I appointed a senior official who—for the first time—had sole and exclusive responsibility for tackling fraud in the Benefits Agency. A specific Minister in the Department also had such responsibility. I set up, by law, an inspectorate with powers to advise local authorities and Departments on best practice in tackling fraud. We laid out a coherent strategy—from one end of the benefit pipeline to the other—to secure the process of delivering benefit against fraud.

We were conscious that it would take a long time to redesign the whole process to make it more secure, but we began that programme. We raised the profile by introducing programmes such as beat—a—cheat and the spotlight programme, by setting targets and, of course, by planning the introduction of the benefit card, to which I shall return.

I want to focus now on the measures in the Bill. In some ways it follows on from the Social Security Administration (Fraud) Act 1997, which I introduced, but there is a difference between that measure and this. My Act covered information that was already in the hands of different parts of the Government. It removed unintended barriers to the use of that information and to cross-checking it between, for example, the tax authorities and benefit authorities. It did not require individuals or companies to make available any additional information over and above that which they were already required to provide to different Government Departments.

The 1997 Act placed no extra burden on business and did not involve any extra intrusions into people's privacy. I did not go that far because I was apprehensive about going any further. I did not rule it out, but I wanted to see first whether the measures that I had introduced were effective, and whether the gains from them were of a magnitude and nature to suggest that we might extend the powers to allow us to obtain information from the private sector as well. I did not go that far initially because I am always reluctant, unless it cannot possibly be avoided, to impose extra burdens on business and individuals or to intrude further into the privacy of individuals and give the state more knowledge about them than it already has.

I shall ask the Secretary of State, who I am glad to see in his place, some questions about his Bill. In calculating the burden that the Bill will place on the private sector, he estimates that the costs could be up to £7 million. That is in some ways quite a modest sum but I want to know a little more about how the figure was calculated. I understand from the hon. Member for Northavon that it assumed that 800,000 inquiries would be made, and the report says that savings totalling about £180 million will arise from it. That assumes that each inquiry costs about £9 to make and yields £225 of benefit savings. I am open to rectification if my arithmetic is wrong—without a calculator, arithmetic is not my strongest suit. I am okay with algebra, but I sometimes make mistakes in arithmetic.

Is the Secretary of State saying that 800,000 investigations will be made, each of which will find, on average, £225 of fraud? If so, the measure is expected to be extremely fruitful and I should like to know the basis for that expectation and calculation. Is it based at all on any analysis of how the 1997 Act has worked?

I should like to know whether any attempt was made to establish how effective the 1997 Act has been. It seemed sensible, and the whole House agreed that it was reasonable to enable the authorities to cross-check, for example, whether people were declaring income for the purposes of income tax but telling the Benefits Agency that they had no income, or whether they were declaring VAT while they were claiming that they were unemployed rather than, in some cases, actually in business and making a VAT claim. Now that we have had three or four years' experience, we should really know how effective the Act has been. Have the inquiries made under it led to savings of the suggested magnitude? I hope that the Government have considered that matter, rather than simply rushing off, plucking a number out of thin air and saying that it represents the savings that will be made under the Bill.

Under the Bill, will it be possible to carry out trawls? Will it be possible to cross-check a category of claimants' information against the information from one of the external sources to which the Government gain access, or will that happen case by case, individual by individual? Do the Government think that, each year, there will be inquiries about 800,000 people, about whom they can make individual inquiries to the banks or credit card agencies, and so on, to establish the reality?

The main use that we expected to make of the 1997 Act was precisely in data matching and in cross-checking categories of claimants who produce information on their income tax and VAT returns and on their social security benefit claims, and in finding out how the figures reconciled. It seems that the Government have said in the other place that they would be very limited in their use of any power to trawl, but I may have misinterpreted what has been said, and I should be happy to give way now. If no Minister wants to intervene, I hope that when they have found out what they promised to do about that, they will inform the House in the winding-up speech.

Without trawls—by which I mean the cross-matching of data—the measures that the Government propose will probably be of only limited use. I very much doubt whether they will achieve the savings that the Government claim in the documents associated with the Bill. The Government certainly seem far more willing to intrude into the private financial affairs of individuals and to make use of such information in the public sector domain than they ever were about the information that they possessed on the hon. Member for Coventry, North-West (Mr. Robinson), when information about his financial affairs fell into the hands of the Secretary of State for Trade and Industry. There seems to be a disparity between the way in which they treat their own kind and the way in which they intend to treat benefit claimants, the vast majority of whom are as innocent as the day is long and are entitled to the benefits that they receive, but who, none the less, may be subject to investigation under the Bill.

How can the Bill be reconciled with the Human Rights Act 1998? I am not a great supporter of that Act. This place should establish the balance between different rights. All rights have to be balanced against one another, but it should not be left to judges to interpret, largely subjectively, a document that is, inevitably, somewhat arbitrary, and the implications of which may not have been foreseen.

Liberty, which has lobbied us, refers to a Swedish case that casts doubt on whether the Bill will be fully compatible with the Human Rights Act. It states that in the judgment in the case of MS v. Sweden, made in August 1997, the Court held that there was an interference with the applicant's rights under article 8 where details of her medical records were passed by a state-run medical centre to a government department investigating her claim for a workplace injury. That seems rather similar to what is proposed under the Bill.

I understand that the Court may have subsequently concluded that it was permissible to invade people's human rights in that way because of the criminal and civil sanctions incurred if any of the safeguards on the use of that data were breached. I am not certain that that would necessarily be the case in any parallel use of the powers in the Bill; nor can we be certain that the courts will not interpret such matters more onerously as time goes by. The very nature of the human rights legislation means that it is left to the judges to develop and create their own law according to the philosophies that pervade the courts at any moment. Therefore, we might find that the Bill falls foul of the Human Rights Act. If it does, we can respond as we think fit and say that the Government have been hoist by their own petard.

Another element in the Bill deserves comment. The "two strikes and you're out" proposal seems to be a severe punishment for someone guilty of a modest element of abuse of the system. He might be entitled to social security benefit, but he might have failed to report the very small sums that he has earned on the side. If he loses his benefit, he will suffer greatly. However, the more serious fraudster——[Interruption.] This is not a debating point; I am talking about people who might face great hardship because the only resource that they can rely on is hardship benefit.

If a serious, professional fraudster, who robs the system of large sums of money by claiming a benefit to which he is not entitled even though he has a job and income of his own, loses his benefit, he will ask, "So what?" He will not lose substantially; it is not a serious punishment for him. The punishment sounds tough and draconian, but it falls harshly only on the least serious offenders.

Will the Minister tell me whether my interpretation is correct? The punishment will not have a serious impact on the professional, multiple claimant fraudster, but it will bear heavily on the small guy, who twice in three years, fails to mention that he did a "bob-a-job" for someone around the corner. I may be wrong because the sanction may apply only to those with a criminal conviction and who have been taken to court for such an offence. In that case, the provision will be limited, because the vast majority of people who are guilty of social security fraud are not taken to court.

Mr. Andrew Rowe (Faversham and Mid-Kent)

My right hon. Friend is making an important point. One of the "frauds" that I often hear about in my surgery occurs when someone carries out a short piece of work that, if declared, would remove him from benefit for six months. That seems to invite the type of fraud that my right hon. Friend has mentioned.

Mr. Lilley

Let me make it absolutely clear that my hon. Friend and I would not suggest that even small frauds can be excused or exonerated. They are wrong and we should use strong measures to ensure that they are eliminated. We should try to change the culture and take steps to prevent and detect such frauds. Those who defraud the system in that way must pay either through an administrative or criminal process, but the punishment should reflect the severity of the offence and should not be designed to attract good headlines or be imposed simply at the behest of spin doctors rather than those who know how best to run the system.

Several other issues have been raised in the debate. One is the old faithful of national insurance numbers. I have some sympathy for Ministers when they are faced with the apparently alarming disparity between the 82 million national insurance numbers that have been issued and the 48 million people of working age and the 56 million in the total population. At first sight, it implies that there are 26 million criminals or, at least, 26 million identities claimed by criminals. However, the very size of the discrepancy indicates that that is not the case; it means that the causes must be major. As I recall, one cause is the fact that we keep people on the computer system after they have died because their widows and other surviving relatives may be entitled to benefits. There are also millions of people who have worked in this country for a time and then gone abroad, and their numbers remain on the computer.

If there were a small discrepancy between the number issued and the number of people at work, that would be much more worrying because it might be attributable to the crime that we fear may be prevalent. Obviously, there is an element of national insurance number fraud and cases of people creating false identities. I began a process of tightening up the national insurance system to make fraud more difficult, and I am pretty sure that the Government have continued the process with the officials who have worked throughout that time. I hope that fraud is becoming more and more difficult. By no stretch of the imagination can we suppose that there are 26 million false numbers created by criminals.

I understand why people raise the issue, and I hope that Ministers will publish the reconciliation between the number of people in the population and the number of national insurance numbers. The Secretary of State gave the wrong explanation for that discrepancy. It is not because of the extension of national insurance numbers to women and children because they are part of the population, although that seems to have escaped him. It is because of other factors, principally those that I mentioned.

There is misunderstanding also about organised fraud. It is a serious problem, which often involves large sums, and it is important that we tackle it. We now have specialist units homing in on it. However, it is important to recognise, as I am, sure my right hon. and hon. Friends will, that it does not account for the major part of benefit fraud, which is committed on a small scale by individuals who are working and claiming, living together and claiming separately, not declaring assets or committing order book and giro fraud and theft.

That brings me to the benefit payment card. The Secretary of State said that it was a great disaster that the Government had inherited, but in fact it was a disaster that they seemed to allow to develop over a couple of years. The then Secretary of State for Trade and Industry, who as the Minister responsible for the Post Office was responsible for reporting to the Trade and Industry Committee on the matter, repeatedly told the Committee that the development of the benefit payment card was going well and would be completed on time, if not entirely within budget.

The process clearly did get behind during that period, which was probably because of bad management and lack of ministerial involvement. The Government were more interested in giving complacent reports to the Committees—the right hon. Member for Hartlepool (Mr. Mandelson) got rapped over the knuckles for trying to pull the wool over its eyes—than in jumping up and down on officials to establish what was going on and to make sure that the project was brought to a successful conclusion. The Secretaries of State for Social Security and for Trade and Industry had both teen Chief Secretary to the Treasury, and the Treasury had never liked the project, so they closed it down summarily. We have lost it, at least for as long as the Government remain in power.

That is sad not only because the benefit payment card would have been an effective way of restricting fraud, by eliminating theft and the use of the order book and giro system, but because a related part of the system was the customer automatic payment programme, which set up an individual account for each claimant, so that all the benefits that they might receive could be dealt with together. That was going well. It was more or less on time and on budget. However, it seems to have lapsed. If that is not the case, I would be happy for Ministers to set me right. The programme had a great deal of potential and was an intrinsic part of creating a secure benefits system from start to finish for the process of allocating benefits.

The Bill at best makes a small contribution to a major problem. When I was in Slovakia, I went to see the little Tatra mountains. The tourist literature said, "Come to the little Tatra mountains, the biggest small mountains in the world." The Bill is the biggest small contribution that the Government can make to the elimination of fraud. However, any contribution is welcome, especially from such a source. I shall not oppose it, but I hope that after the general election my hon. Friend the Member for Havant will be in charge of the Department. He will give renewed momentum to the battle against fraud and to the reform of the welfare system, as he is singularly well equipped to do.

9.6 pm

Mr. Christopher Chope (Christchurch)

It is a pleasure to follow my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley), who spoke with such knowledge and ability. It is a great shame for the country that he was not able to carry on beyond 1997 the good work that he started in the previous Government. It is clear from his contribution that we would have got on top of the problems with his common-sense approach.

I understand that the debate is a farewell show for the Minister of State. I, too, pay tribute to him. We spent many long productive hours discussing local authority legislation. Above all, he will be remembered for bluntly telling the Prime Minister and the Labour party that they were wrong about the dome. He had the courage of his convictions, saying that he would never visit it because it should have been in Birmingham.

Since the Government came to power, we have fast become a nation of rip-off merchants. The Bill is another attempt to tweak the system by dealing with trivial matters, but fraud is rife. We heard today that the foot and mouth outbreak is thought to have started because of the illegal import of meat. My right hon. and learned Friend the Member for Folkestone and Hythe (Mr. Howard) recently spoke in the House about the fact that the illegal importation of immigrants and asylum seekers has reached epidemic proportions. We know that the illegal import of tobacco, alcohol, fuel and drugs is higher than ever.

The Bill addresses the problem of £7 billion of social security fraud. It is important to tackle that, but why have the Government allowed fraud to develop elsewhere? I have spoken before about tobacco fraud. Once people get into the business of being able to defraud the taxpayer, they also feel free to defraud the social security system. They become fraudsters. It is amazing that in the Government's first year, the yield from tobacco tax was about £8.4 billion. This year, it is £7.4 billion despite the fact that smoking has increased and the tax on cigarettes has risen by a third.

Madam Deputy Speaker (Mrs. Sylvia Heal)

Order. I have allowed the hon. Gentleman to speak for a few minutes on such matters, but he must now confine his remarks to the Bill.

Mr. Chope

I am trying to illustrate my argument by referring to other issues with which the Government have or have not dealt. Social security fraud is a substantial problem, but the Government's policies are making it worse. They are encouraging many people to become fraudsters because it is a way to make sufficient money.

Mr. Rowe

My hon. Friend has some justification for his line of argument. I live in Kent. and it is well known that vans cross the channel two or three times a day. They are driven by people who have nothing else to do. I have no doubt that many of those people are claiming benefit because the activity in which they are engaged is one that they cannot conceivably declare to the authorities. They therefore have to pretend that they are unemployed.

Mr. Chope

My hon. Friend is right, and I am grateful to him for making that point. The issues of tobacco fraud and the smuggling of immigrants, alcohol and fuel are inextricably linked with the lawlessness that the Government have encouraged through their taxation policies.

The Government say that they will be able to make savings by reducing social security fraud, but the evidence suggests that the savings will be nothing like those that could be made if the Government had a more realistic policy on tobacco fraud. It is estimated that that fraud is costing £3 billion a year. In a written question that was answered today, I asked the Chancellor of the Exchequer what targets he has set for the reduction of smuggling of tobacco, alcohol and fuel—

Madam Deputy Speaker

Order. I have reminded the hon. Gentleman once—this is the second time—that he must confine his remarks to social security fraud. He has given the example of tobacco fraud. He must now restrict his comments to social security fraud.

Mr. Chope

I shall do that, Madam Deputy Speaker.

The Government talk about joined-up government. We are debating the Bill on Second Reading. It is not a Third Reading debate and we are not considering the Bill on Report. We are discussing the Government's priorities, and the Government are putting enormous emphasis on the Bill. They are putting too much emphasis on it while neglecting other issues.

I shall finish the point that I was making. In answer to my question to the Chancellor about the targets that he had set—

Madam Deputy Speaker

Order. I have already asked the hon. Gentleman to restrict his comments to the content of the Bill. We are, indeed, considering it on Second Reading, but it is about social security fraud.

Mr. Chope

I accept that, Madam Deputy Speaker.

My right hon. Friend the Member for Hitchin and Harpenden touched on infringements of civil liberties. The Bill contains amazing and draconian powers to deal with supposed social security fraudsters. I fear that the Bill, as with so much other Government legislation, will have unintended consequences. I suspect that many more people will rely on cash transactions, avoiding anything going through the bank so that they cannot be the subject of a record that social security investigators can require to be produced.

The House will be pleased to know that we are law-abiding in Christchurch, but that does not mean that there are not instances of social security and other fraud. However, those instances pale into insignificance when compared with the number of cases of maladministration. I should like the Government to put much more emphasis on ensuring that their administrative procedures for social security are in order before seeking more powers to require the private sector to provide information. If the Government had concentrated on improving the administration of their existing benefits system, they would have won much more support than the present Bill will guarantee them.

I have a doctor in my constituency who retired and applied for a pension. When it was not paid. he complained and has now been told that his application was never received, although he has had correspondence suggesting that it must have been. That is just one example; I raised that matter in the House before Christmas, and still have not received a satisfactory response. There are many instances in which, we know, people have not yet been paid the money to which they are entitled under the Government's measures on winter fuel payments. The administration of such matters is just not working.

Conservative ideas about having one simple system are the answer to the problem, and I welcome the proposal to set up a single benefits investigation squad. One national body would have responsibility for investigating all forms of welfare fraud, and would be administered by the Benefits Agency. When the Conservative Government take over, I hope that they will put a lot more emphasis on improving the quality of administration. The social security system should protect the innocent and look after those who have fallen on hard times through no fault of their own. Too often, those people fall foul of the system and too much emphasis is put on dealing with those—possibly a large number——who are guilty of fraud, which, given the amount of money taken from the taxpayer, is trivial, compared with the real villains, who are making millions of pounds from systematic housing benefit and social security fraud

The powers in the Bill do not give the impression that they will be well targeted. If there are going to be 900,000 inquiries in a year, that suggests a scatter-gun approach. If we concentrated those extra draconian powers on identifying the top 1,000 fraudsters, we might get somewhere. I fear I that the Government have got their priorities wrong. Considering that they have been advised to get a grip on national insurance numbers, I was surprised to learn of evidence that they do not seem to have done so yet. My right hon. Friend the Member for Hitchin and Harpenden made the point that there is a long-standing discrepancy between the number of national insurance numbers and the number of people living and working in this country. However, that does not mean that there should not be a system whereby all new national insurance numbers issued coincide with the number of people coming into the workplace. There is plenty of evidence that people can pick up extra national insurance numbers and identities without too many problems.

When the Minister of State makes his winding-up speech, I hope that he will tell us why a national identity card is not the answer. If everybody had such a card, there would be no need for multiple identities and it would be much easier to deal with fraud systematically. The Bill sounds tough and draconian, but I fear that it will deal only with the fringes. It will probably result in some people who are caught up in the lower levels of fraud being brought before the courts and suffering benefit penalties, but I fear that it will not deal with the substantial issue. That is why, although I will not oppose it, I find it rather a disappointing measure.

9.19 pm

Mrs. Teresa Gorman (Billericay)

When one hears the sums involved in social security fraud— £7 billion has been mentioned—and realises how many people may need some form of financial assistance, one could easily get the impression that just about half the households in the country are involved in benefit fraud. It is a massive problem, as everyone acknowledges.

Ever since I can remember, people in my circle would say that if one takes care of the pennies, the pounds will take care of themselves. When the Minister sums up, will he tell us what he is doing to encourage people at local level who know that fraud is going on to participate in bringing the problem under control? I want him to take note of two anecdotes from my constituency.

A member of the Conservative party who happened to work in the local pharmacy knew of a number of young women who came in regularly to claim prescriptions for which they did not have to pay, because they were on social security benefits. 'That young woman lives in the neighbourhood and brought to my attention the number of households in the neighbourhood that were apparently headed by single individuals. When we checked on the electoral roll at election time, we found that to be true.

There were streets where perhaps three quarters of the households were headed by single women. However, when we went canvassing in the evening, the door was invariably opened by a young man, who had obviously come home at the end of his day's work. Usually, because it was a hot summer, he was dressed in nothing much above the waist. He was relaxed and obviously in a family situation. When we asked a young man whose work van was outside the house whether he was the householder—knowing, of course, that he was not—or whether he was on the electoral roll, he said, "No, I'm the baby-sitter" or some other such flippant remark. What could we do about that? He had no intention of being on the electoral roll.

The combination of information from that young woman who worked in the local pharmacy and of our canvassing returns gave us a comprehensive view of what was going on in those neighbourhoods. The young woman, who thought that it was her public duty, with a little encouragement, to produce quite a lot of evidence to back up her story, submitted it first through one of those telephone lines, and subsequently in writing to the Department, to be investigated. She got—I have seen the letter—the standard reply thanking her and so on.

All that took place just after the last general election. She is still waiting for something to be done. There she was, a responsible citizen doing what she thought was the right thing to do. Now she is demoralised and thinks that the whole thing is a joke, and that it is not worth while sticking her head above the parapet. After all, if those people knew that she had made such comments to the Department, her life could be made very difficult for her. It is difficult to do what she did and, effectively, shop people. The small savings that we could make would have a profound effect on the morale of the people in such neighbourhoods who are working for a living and are often getting along on not very much money, yet they see those situations being allowed to continue.

I shall give the Minister another example. A nurse came to see me about a situation that she had discovered from a patient who was in hospital for some minor injury. He had confided to her that he had been on holiday in Cyprus and had gone paragliding. The nurse had reason to know that the man was on social security benefits, and she came to me to ask what she should do about the matter. I said that she should report it, which she did. Again, we are waiting for the follow-up. 1 can quote chapter and verse.

As it happened, the very same man came to my surgery on two crutches. He staggered through the door, which his wife opened for him, and sat down and told me a sad story about the curtailment of his benefits. I asked him in all innocence why that was happening. It was clear that he remained on some form of benefit, but he told me that some dreadful nurse—he knew who she was and would get her one day—had reported him to the authorities. He had been on holiday in Cyprus—of course, his son had paid for the holiday, as he could not afford it——and had happened to admit to the nurse that his son had taken him paragliding as a birthday treat. His injuries and health problems were apparently so serious that he had previously been on full benefits, which included one of those wonderful yellow car stickers that allow one to park here, there and everywhere without having to pay fines or even fees.

Hon. Members are told many similar anecdotes in their surgeries and we encourage people to take action on them, but I would love to know from the Minister of State how such matters are followed up. Many people in the same neighbourhoods buy things from catalogue houses, but do not always pay their bills. The private sector employs an army of people to go round, sort such people out and collect the money. 1 am not sure of their status, but I suppose that they are the equivalent of bailiffs or official debt collectors. I suggest that such a system might be a better way not only of administering benefits, but of checking whether they are abused.

Indeed, the insurance industry uses such a system. If one makes an insurance claim, the company does not merely hand over the money; it sends somebody round to inspect what the claim is about and to double check—this is especially important for injuries claims—that the person in question is not merely faking his or her misfortune. We read in the newspapers occasionally about people who have been photographed when they are engaged in activities that run contrary to the claims that they are making.

In my constituency, a case arose in which a man who was claiming invalidity benefits turned out to be running his wife's carpet cleaning business on the side. His work—he was, incidentally, a policeman—involved moving very large carpet cleaning machines. He was caught because he had made insurance claims, but had been monitored. Somebody had obtained the correct information by double checking.

I realise that an awful lot of people would need to be employed to double check on all benefit claims. However, in a neighbourhood where such activities occur on a grand scale, a little checking and inspection would make a huge impression on the morale of people who are trying to do their best to assist the community at large in preventing benefit fraud. As the Bill proceeds through the House, I hope that the Government will tell us how they will make use of the checking system. It is all very well setting up a new department within the Department and appointing a tsar who will invent more schemes, but I put it to the Minister that he will achieve a great deal more at ground level if he takes more note of what citizens are doing to assist in dealing with benefit fraud.

Of course, benefit fraud is universal. The Conservative Government had to deal with it when we were in power, and my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) made a tremendous effort to do something about it. It is not an easy problem, but we could make serious in-roads if only we could persuade the Government to insist that the Department follows up discrepancies when honest citizens make complaints through the normal channels, as they are requested to do. If they do so, the Minister will also have to tell us what will happen to such people when they are not on benefits and find that they must manage, like other people, by finding jobs and going out to work. They currently have no incentive to do that. Of course, there is also the problem of how to pin down people who are living openly with working partners—their partners might also be misrepresenting their position—and claiming falsely. The Minister must tackle those problems if he wants to improve people's morale in relation to benefit fraud.

9.30 pm

Mr. Andrew Rowe (Faversham and Mid-Kent)

I want to approach the subject from a slightly different angle. What emerges primarily from my experience in my surgeries and elsewhere is that there are too many disincentives to honesty. I consider that to be as big an issue as that of incentives to dishonesty.

Let us consider the individual who is desperate to get back to work, who may well be over 50, and who is finding it extraordinarily difficult to secure employment. He is on benefit, he has a wife and—perhaps—children to support. He—it is usually a man—is then given the opportunity to try his hand at some employment for two or three weeks. He has been applying for work for months, and has never even been granted an interview; now he has the chance of doing a little work. He then finds that if he declares that he has done the work, he will be denied benefit for several months.

That is bad news. How can it encourage such people to find their way back into work? How can it encourage them to play the system fairly? This is, I think, an enormously important question.

Things are too difficult for people who are trying to set up in business for themselves. The Secretary of State had the goodness to respond with alacrity to information about a case that I encountered, and I am grateful to him for that. I was, however, outraged when a couple who came to my most recent surgery told me what had happened to them. They had been together for 11 years, and had their six-week-old baby with them. The man was trying to set up in business for himself, and was therefore not available for work in the strict sense of the term. He was putting together the equipment that he needed, with assistance from his brother-in-law and other members of his family, and was trying to find premises.

As we all know, the early stages of setting up in business are hugely taxing. The wife was not allowed to go back to work: she was a fitness instructor, her baby had been born only six weeks earlier, and according to the rules of her profession she was not even entitled to take tests to establish whether she was fit to return to work for eight weeks. The Secretary of State now tells me that she was misdirected. The fact remains, however, that the couple were told that they were not entitled to benefit because the man was not available for work. Moreover, one of the kind women at the Benefits Agency told his wife, "You would be a lot better off, dear, if you shed him." What a thing for a woman to say to her partner of 11 years, the father of her firstborn child. I think that such disincentives to truthfulness and honesty lead to much of the fraud about which we are so anxious.

There is another problem, in regard to which I have great sympathy with the Government. In areas such as mine, where unemployment is fairly low, finding appropriate staff is enormously difficult. I realise that the Minister has heard all this so often that he is not the slightest bit interested in what I am saying, but I will continue none the less.

It is often difficult to find staff who are capable of doing the job, given the salaries that social security departments can offer. One consequence of that is that someone who writes three letters in three weeks may find that a different member of staff replies to each one. That leaves the person concerned with no confidence that his case is understood, or that there is any continuity in the arrangements.

Thanks to the reforms of the Child Support Agency, we encounter far fewer CSA-related cases in our constituency surgeries. One case we frequently encounter, however, is that of the spouse who, while claiming to have no income, is living the life of Riley, while the—usually—abandoned wife is unable to persuade the CSA either to investigate the situation or to do anything about it. Although it is clear that a man who is running two cars and living in a comfortable house on a substantial income is perfectly capable of maintaining his child, the CSA will not investigate. I agree with my hon. Friend the Member for Billericay (Mrs. Gorman) that it is the refusal to follow up manifest cases of blatant dishonesty that demoralises the honest citizen who is trying to make the system work.

9.35 pm

Mrs. Jacqui Lait (Beckenham)

1 would like to begin by commending the speeches of my hon. Friends the Members for Billericay (Mrs. Gorman) and for Faversham and Mid-Kent (Mr. Rowe), because this is possibly the last time they will contribute in the Chamber. They have, as ever, made characteristic speeches, as they have been notable for doing all through their parliamentary lives. They have taken up subjects tonight that are characteristic of all the causes that they have espoused over the years. I thank them very much for their contributions and wish them well.

Having wished two of my colleagues well, it would be churlish of me not to try to make the Minister of State, the right hon. Member for Birmingham, Perry Barr (Mr. Rooker), blush, as almost every other hon. Member has done, by thanking him for his contributions over the years. We shall probably have the pleasure of Question Time on Monday, so this may not be his last outing. Indeed, we may well go into Committee on Tuesday—

The Minister of State, Department of Social Security (Mr. Jeff Rooker)

Absolutely.

Mrs. Lait

I am glad to hear that we are not dissolving Parliament on Monday, and I look forward to the Standing Committee. Over the past few years, the right hon. Gentleman and I have jousted with each other often enough, and I certainly appreciate his tremendous contribution to the House.

We started this debate—on a Bill that no one has said they will not support—with a half-hour speech by the Secretary of State, which was characterised by my hon. Friend the Member for Havant (Mr. Willetts) as a speech that the right hon. Gentleman would be likely to deliver on a wet Wednesday night during the election campaign in Edinburgh, Central. Edinburgh, Central is a constituency with which I am familiar, because my husband fought the two 1974 elections there against the present Secretary of State for Foreign and Commonwealth Affairs, the right hon Member for Livingston (Mr. Cook), in the latter's first campaigns before he did his chicken run to Livingston.

I have some sympathy with the tone of the Secretary of State's speech, but it was not terribly constructive, especially as the Bill has come from the House of Lords amended by my noble Friends Lords Higgins and Astor in a way that has made it a much better Bill. It was unfortunate that the Secretary of State chose to attack our contribution to eliminating fraud, and I was delighted that my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) not only set the record straight on that, but did so in such a way as to blow apart the Secretary of State's attack on our record on fraud.

As my hon. Friend the Member for Havant said, we shall abstain in the vote on the Bill hope that, when we come to write the legislation in the new Parliament, it will be more understandable than this Bill. Lord Brightman sent up the writing of the Bill on Third Reading and said that he hoped that the Government would listen to his requests for easier reading. Anyone who has tried to read the Bill will have had great difficulty in so doing. That apart, some questions remain that we wish to have answered, and many hon. Members have picked up on them.

I shall begin by talking about the code of practice. I was under the impression, as was the Vote Office, that the only code of practice in existence was the draft one produced in the Lords. I was not aware that the amalgamated one referring to local authorities and the Department of Social Security was available in the Library. Furthermore, it is most interesting that the Data Protection Commissioner, who was particularly concerned when she first read the Bill, has written about her many points of disagreement with it. I shall not go through them all—some were dealt with by amendments tabled in the other place—but the Secretary of State's assertion that she has written what appears to be a one-sentence letter saying that all her concerns have been met worries me greatly, because those points were matters of principle. I should be most grateful if he told us, either tonight or before the Bill is considered in Committee, precisely what exchanges took place between the commissioner, Ministers and officials to make her happy with the measure. I accept that she is happy with it; I just want to know why.

Time and again, the right to privacy has been raised. It is of great concern because information—perhaps inadvertently; perhaps not—could be made much more widely available than one would wish. I hope that we receive in Committee an acknowledgement of the worries of organisations such as the British Bankers Association about the information that will be available. Like many other bodies, it wants reassurance not only that the authorised officers will be properly trained, but that there will be a system whereby the list of authorised officers, which will be made available to private organisations such as the banks, will be kept up to date.

We heard some interesting figures from the Secretary of State. In the other place, Baroness Hollis said that she expected 500 DSS staff and 1,000 local authority staff to be authorised officers. The Secretary of State said that the figure for the DSS or the Benefits Agency is going down to 300, and one would like to assume that the figure for local authorities will be only 600. An enormous number of people will be involved; and allowing for even a normal turnover, it will be difficult to keep the list up to date. It is possible that the private organisations—

Mr. Rowe

Will my hon. Friend give way?

Mrs. Lait

I am very sorry. I would dearly love to give my hon. Friend the opportunity to intervene, but I am trying to get through my speech quite quickly.

How will the list of authorised officers be kept up to date, and how will the private bodies be notified of changes?

There is also concern about management responsibility for authorised officers. My noble Friend Lord Astor said that, as far as he is concerned, an executive officer is equivalent to a second lieutenant. Having been in the civil service, I understand exactly what he means. When private sector organisations are dealing with civil servants, they must know that they are working with people who have sufficient management authority to deal properly with the information.

A number of my hon. Friends, particularly my hon. Friends the Members for Bournemouth, West (Mr. Butterfill) and for Christchurch (Mr. Chope), referred to the cost of the Bill to the private sector. The mere fact that there is a difference of about £5 million between the estimates in the regulatory impact assessment allows people to ask serious questions.

We hope to make further improvements in Committee and I have raised a number of issues about which we are concerned. We want the Bill to be passed, as it represents a further step towards tightening up the defences against fraud and eliminating fraud from the system.

9.44 pm

The Minister of State, Department of Social Security (Mr. Jeff Rooker)

I shall do my best in the time available to answer as many questions as possible. I am deeply humbled by many hon. Members' comments. I can guarantee that the speech will not be my last from the Dispatch Box, although perhaps it could be. [Interruption.] If the Bill is given a Second Reading, I shall move the programme motion, the terms of which are a little more restricted.

I am deeply grateful for hon. Members' remarks, which I reciprocate to others who will not return after the next election. Every day in the House in the past 27 years has been like the first, but all good things come to an end. I hate the word "retirement", and I am not going to prune roses, but I have no plans, though no one believes me.

Some unfortunate phrases have been used about Department staff, although I appreciate that they were not intended maliciously. However, the hon. Member for Northavon (Mr. Webb) mentioned the seniority and probity of staff who issue national insurance numbers; investigating officers were also mentioned. In the past few years, the number of people who are qualified and eligible to issue national insurance numbers has decreased from approximately 1,500 to about 500. The officers who will be authorised under the Bill are the same officers who, day in, day out, visit businesses, contact companies, and ask managers about their employees. In the past 20 months since I have been at the Department, I have not received a single complaint from private sector companies about the way in which they were approached by executive officers.

The Bill will authorise officers by name. We will begin with 175 officers, although I ask not to be tied down to a specific figure. We do not envisage more than 300 such officers. They will be qualified under the professionalism in security—PINS—training programme. When visiting benefits agencies and listening to our fraud staff, I have picked up the point that nowadays Inland Revenue and national health service trust advertisements for investigatory officers state: "PINS training preferred". They prefer the Department of Social Security system. However, the ultimate accolade is that the private sector is now advertising for PINS trained staff. Last summer, a big bank, which was formerly a building society, stated in its advertisement for fraud and investigation audit officers for its headquarters that PINS training was preferred. It was basically trawling for former DSS employees.

Those officers will be the authorised officers under the Bill. If they are good enough to be recruited by the private sector and currently good enough to make inquiries and undertake normal investigations of the private sector, they are good enough to carry out the duties for which the Bill provides.

The hon. Member for Havant (Mr. Willetts) said that the Bill was thoroughly debated in another place. I would never say that the other place conducted line-by-line scrutiny in the same way as the House of Commons, but, in conventional terms, the Bill was given a good going-over and we made several modifications to it there.

We never intended any individual fishing expeditions to be conducted under the Bill. A paragraph of a subsection included a sentence that contained the words, "likely" or "connected to". We used the example of window cleaners. That was a little unfortunate for window cleaners, but we could have used other examples. We could have referred to families of known fraudsters as a discrete group. We took out the original reference because it implied an element of fishing—we do not intend any fishing for named individuals to occur. That is clear in the Bill. I am referring not to the code of practice, but to the Bill. No inquiries can even be made unless it appears to that officer that there are reasonable grounds for believing that the identified person to whom it relates is … a person who has committed, is committing or intends to commit a benefit offence; or … a person who … is a member of the family of a person falling within paragraph (a) above. That family member, such as a spouse, is the only person who could affect a housing benefit claim. It could not be a brother, sister or grandparent who lived there but had nothing to do with the benefit claim. They would not be caught under the legislation. There is no intention to go on any fishing expeditions. The only area in which that statement would be qualified is in the bulk transfer of information from the utility companies. However, we will not go fishing when it comes to individuals.

We will seek the bulk transfer of information from the utility companies—gas, electricity and water—only when specific properties have abnormally high or low usage. They will not give us the names of any individuals. It will be up to us in the Department of Social Security to data-match that information against our benefit claimants. That is the purpose of the bulk transfer of information—it will not be used for tracing individuals. People must have good grounds for requesting it.

We will not simply trawl the banks. First, officers must believe that something is wrong on the application form or that someone has lied. Alternatively, there could be an allegation. The hon. Member for Billericay (Mrs. Gorman) shopped a whole street—probably because she is not standing for re-election. That case, which was a clear case of fraud, as the hon. Lady said, has come to my attention since I came to the Department in July 1999. However, we can never report back to the hon. Lady's constituent who sent us specific names and addresses, all of which we examined. We are never in a position to report back to a third party—it is simply not possible. We cannot even report back to the Member concerned.

People sometimes believe that the problem is being ignored. I have looked at these cases; I have gone around the country and discussed them. I can assure the House that, to the best of my knowledge, we check the allegations and set up inquiries. We also do more risk analysis than in the past so that we do not waste resources in checking areas where we think that the allegation cannot be justified. We know that there is a high risk with some groups of benefit claimants, and risk analysis enables us to make the best use of our resources.

We will not trawl the banks. If we think that someone is lying to us when he says that he has no bank account, no money and no capital, we will not send out a billet-doux to all the banks asking whether they have any information on that person. That is not our intention. We have never said that we would do that, and we have made it quite clear that we will not. We will not even approach the banks to start with.

If we suspect that someone has an undisclosed bank account, we may first approach a credit reference agency, which we should be able to do electronically. That will tell us who has searched that person's credit files recently as well as giving information on existing credit agreements and credit cards. We would know, because searchers leave footprints on the computers. I have seen it myself when visiting banks and insurance companies. We may see that a bank has searched the file and we may then approach the bunk to see whether the person had an account at the bank. In other words, we need a reason to approach a specific bank. If not, we can approach a lender or a credit card company to find out what they know about the person. They might have the details of the person's bank account that he had provided when applying for the credit facility, or they may know how he makes repayments. If those avenues are not fruitful, we might approach a utility company to find out how the person pays his bills, because it might be by direct debit. If all those avenues fail to lead to details of a bank account, we will accept that and rely on other evidence. That is an example of how we might go through the system. We will not take a scattergun approach to the banking system.

Many right hon. and hon. Members have mentioned NINOs—national insurance numbers. I think that the issue is worth a debate; it is worth more publication. I am grateful to the former Secretary of State for Social Security, the right hon. Member for Hitchin and Harpenden (Mr. Lilley), for taking a more responsive, moderate view as he waded through his history of successes at the Department of Social Security as evidence to support Ministers, and his belief that we manage the NINO numbering system.

That system is not static. It is not simply a list of numbers on a computer. It is an actively managed system. Staff manage the numbers going on to the system, the activity associated with them and those coming off.

Everyone is appalled by the figures, but they are due to the nature of the population. We were asked about the 4 million numbers added since 1997. We estimate that 2.8 million are children, 800,000 are foreign nationals and about 120,000 are asylum seekers, which adds up to about 3.7 million. We do not know about British nationals who have come back from abroad.

There is a problem. At the moment, we pay pensions to 1 million pensioners abroad. That is not counting people who are working abroad. There are millions of people who have been in this country and left. Millions of ordinary United Kingdom residents have gone abroad. There may be millions more who have come here to do three weeks of fruit picking in Scotland or in parts of East Anglia where the gangmasters work. They collect a NINO and then they never return to this county, but the NINO remains on the system.

About 12.5 million people on the NINO system are deceased, but we need to keep the records. It is true that we cleanse the system. I do not have the figures to hand, although they are in my folder somewhere, but I think that last year we cleansed more NINO numbers from the system than were cleared in the last 10 years of the previous Administration. We are actively searching and managing the NINO system. It is not always the easiest matter to explain.

Children are on the system these days, for obvious reasons. The child's national insurance number is automatically generated when he or she is 16 because it was locked in when the first claim for child benefit was made. It is an important part of the process.

There are other aspects of NINO management. For the simple reason that children are being born but dead people are not taken off the system, there will be an inexorable increase in the numbers. Everyone will realise what will happen in another 20 years, given that we have reached 80—odd million numbers since 1948. There are huge numbers on the system, so we have to flag them. Suspect numbers—those where we think that there is an abuse—are flagged. If they are used, an inquiry is automatically triggered.

The credit industry fraud avoidance system has been mentioned. I regret that we are not, and cannot be, members of CIFAS, as that would help with reciprocity in the transfer of information. I point out to the hon. Member for Christchurch (Mr. Chope) that the Bill is part of the price that the country must pay for not having an identity card system. We are virtually unique in western Europe in not having such a system. Other countries do not need this sort of legislation.

In so far as we can be, we are satisfied that the Bill complies with the European convention on human rights. We have the best legal advice and the best legal brains in Whitehall. They do not always get it right, but in this case we have put them through the mill since lost summer. I must tell the hon. Member for Beckenham (Mrs. Lait) that we have no outstanding inquiries from the Information Commissioner—formerly the Data Protection Commissioner. To that extent, I hope that we can satisfy hon. Members. The Bill will cause a degree of intrusion, but only for people we think have lied to us about a benefit claim.

Finally, I want to reassure the House that there will have to be good, reasonable and legally tested grounds for making claims about people's bank accounts. There will be no fishing expeditions. All the officers will be trained and qualified under the professionalism in security training system. They will be ordinary executive officers, who are dealing with industry day in and day out in a highly professional manner. I think that we will have 13 or 14 sites throughout the country from which the inquiries will be made. It will not be a case of all the fraud investigators being in the Benefits Agency; they will be a select and elite corps. I think that we can trust in them. They will be properly trained to do an effective job.

I commend the Bill to the House.

Question put and agreed to.

Bill accordingly read a Second time.