HL Deb 06 December 2001 vol 629 cc1025-36

8.43 p.m.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham) rose to move, That the draft regulations laid before the House on 22nd November be approved [12th Report from the Joint Committee].

The noble Baroness said: My Lords, the subject is becoming increasingly sexy as the evening proceeds. I beg to move that the draft Social Security (Loss of Benefit) Regulations 2001 laid before the House on 22nd November be approved.

We spend over £100 billion each year on social security. It is our duty to make sure that the system is secure from both fraud and error so that the right money goes to the right people.

The latest figures announced on 29th November show that the measures we have introduced to tackle fraud are having a marked effect, reducing the level of social security fraud in income support and jobseeker's allowance by 18 per cent, which shows that we are going some way, and successfully so, to meeting our target of 25 per cent by 2004 and 50 per cent by 2006.

While we have made a good start towards achieving the duty, we need to do more. We introduced a number of powers in the 2001 Social Security Fraud Act that received Royal Assent this May to support the overall strategy of safeguarding social security. The regulations tonight provide the detail for one of those measures. A further set of negative regulations introducing consequential amendments will be laid in January next year.

The loss of benefit provisions are intended not only to act as a deterrent to recidivism; they also form part of the Government's continuing welfare reform programme. They build upon one of the key recommendations in the report of my noble friend Lord Grabiner on the informal economy that was published in March 2000. For the vast majority of people who cheat on their benefits their first conviction is their last. But for those who continue to offend we think it appropriate to bring an offence into play. The regulations describe the powers to take benefits away from people who persistently abuse the benefit system.

We do not seek to introduce these powers to target those who have slipped into the system by error. While we have reduced the level of social security fraud in income support and jobseeker's allowance we are still finding cases that involve the commission of deliberate, repeated fraud.

An investigation by the Benefits Agency security investigation services in May this year identified that three people were involved in the manipulation and subsequent encashment of order books. When arrested they had in their possession a number of order books, stolen identification and in excess of £1,050. The subsequent prosecution resulted in the conviction of all three defendants with sentences ranging from five months' imprisonment and a fine of £1,050 to 14 months' imprisonment. It was also revealed that one of the defendants had been prosecuted as part of a separate investigation in 1999. At the time they were sentenced to 90 days' imprisonment, suspended for two years. There is, and there continues to be, persistent wilful and serious fraud.

The Social Security (Loss of Benefit) Regulations 2001 introduce powers that will provide a deterrent to those who are considering committing further benefit offences. These regulations are about ensuring that there is an effective deterrent in place to dissuade those who are subject to a first conviction for a benefit offence from re-offending providing that, where we have to apply a sanction, this is done in a uniform manner across all sanctionable benefits and that the level of the sanction applied is based upon experience gained from other areas of the department which are tried and tested. The regulations ensure that an absent or non-resident parent's responsibilities continue to be met by continuing to take child support maintenance deductions before a sanction is applied. They enforce that sanction, even where an offender tries to hide behind a partner by swapping benefit claims. This occurs in the case of a joint claim where an attempt is made to change who is the primary claimer. They continue related passport benefits when a sanction is applied, and the availability of fallback provisions to protect the vulnerable and those dependent on them by providing a scheme that is a close reflection of the hardship scheme that already operates for labour market sanctions. Finally, they ensure that a sanctionable benefit cannot be avoided by merely stopping and then re-starting a claim to benefit.

These regulations are not disproportionate. They do not provide sanctions so hard that they will put people into serious destitution, nor do they target individual groups of customers. They are consistent across the board. What they do is introduce a fixed, 13-week disqualification period.

I shall run very quickly through the regulations. Regulation 2 describes how the disqualification period will be administered, ensuring that it is applied in a consistent manner to all sanctionable benefits and payment. It also describes how the sanction will be applied to those offenders who seek to avoid it by ending and then re-claiming benefit. The powers are not intended to cause undue hardship to those who have not maintained their responsibilities back to us in relation to the benefit system.

Regulation 3 describes how the level of reduction as a result of the application of the sanction is calculated for those offenders already in receipt of income support. The application of the two strikes sanction to all other sanctionable benefits will result in the removal of the full amount of benefit payable.

Regulations 5 to 16 provide fallback provisions for those clients who would otherwise have no means of supporting themselves. They reflect the hardship schemes and the vocabulary of vulnerable people that already operate in labour market sanctions.

In order to ensure that the sanctions do not impact upon the provision of housing—this, in my view, is extremely important because a dependent family must not be made homeless however wilful the offender's behaviour may have been—Regulation 18 provides for a continuance of housing and council tax benefit for those in receipt of income support or income based jobseeker's allowance.

To ensure that an offender's responsibility to dependants will continue to be met, Regulation 20 provides that child support maintenance deductions that are made from benefit will continue and will not be impacted on by the implications of the two strikes sanction.

I hope that your Lordships agree that we have already made useful progress in reducing social security fraud. We need to continue that momentum. We are not talking about errors or about trivial fraud; we are talking about sustained serious benefit fraud for which someone has twice been convicted by the courts. The regulations are part of our overall strategy on tackling fraud and rebuilding confidence in the welfare state that we all support. I commend the regulations to the House.

Moved, That the draft regulations laid before the House on 22nd November be approved. [12th Report from the Joint Committee.](Baroness Hollis of Heigham.)

Lord Higgins

My Lords, the measure is introduced under the Social Security Fraud Act 2001, which your Lordships laboured long and hard to improve. As a result of that labour, it became much better legislation than it was when it arrived here from another place.

As the regulations are made within six months of the main legislation, my understanding is that they do not go to the Social Security Advisory Committee, under a provision in the Social Security Administration Act 1992. I was not involved in that Act, but I wonder whether that is a good idea. On a number of such regulations it is arguable that we would benefit from the committee's advice. On a separate point, no doubt the Minister can confirm that the regulations are consistent with the human rights legislation.

When I first saw the regulations I was a little worried because, as the House will recall, we had long debates on the "Windlesham amendment", which would have imposed sanctions by withdrawal of social security benefits for crimes and misdemeanours that took place outside the social security system. I understand that the regulations operate purely within the social security system. The sanction will be enforced only as a result of fraudulent action within the social security system. To that extent we can reasonably welcome them. To use a shorthand form for this evening's rather esoteric audience, it is a "Grabiner point" rather than a "Windlesham point", arising from the "two strikes and you're out" proposals from the noble Lord, Lord Grabiner.

I should like the Minister to update some of the figures and clarify one or two points about the regulations. As I understand it, the Government propose to withdraw or reduce benefits for people convicted twice of a benefit offence within three years. The sanction will be for a fixed period of 13 weeks and will begin after conviction for a second offence if benefit is in payment. So far, so good. However, if benefit is not in payment, the sanction will begin when the entitlement first arises in the three-year period following the second conviction. The noble Baroness nods, but I do not understand how that will work in practice. She tried to cover the point in her opening remarks, but it is not dealt with in the explanatory memorandum. Perhaps she could explain how the provision will work in practice.

Various estimates have been made of the size of the problem of benefit fraud. It was estimated in December 1999 that £2 billion a year was definitely lost, while £3 billion was suspected as being lost and there were suspicions about a further £2 billion a year. I am not at all clear about how those figures were arrived at, particularly how we know definitely that £2 billion a year is lost. Perhaps the Minister could clarify that.

The Government have rightly set targets for the reduction of benefit fraud. I was surprised at the Minister's opening remarks. My understanding was that the target was a 30 per cent reduction by March 2007 and a minimum 10 per cent reduction by March 2002, but the noble Baroness seemed to refer to 25 per cent by 2004 and 50 per cent by 2006. I am not sure whether that is an updated target.

There is also some confusion because the Minister in another place went on to say that the 10 per cent target was not only on track, but 18 months ahead of target. Working out the arithmetic, he ought simply to have said that the Government are ahead of their objectives. Perhaps the Minister could clarify the position on the various targets so that we can judge the Government's performance against them.

The other point that emerges clearly is that the situation is not necessarily improving. An article in the Sunday Times said that an internal departmental report showed that the proportion of housing benefit fraud cases won by local authorities had gone down significantly. The record of local authorities on that is worrying. Only a very limited number of local authorities are successful in pursuing housing benefit prosecutions. The latest figures that I was able to find show that 40 per cent of local authorities did not successfully prosecute a single person for housing benefit fraud and 20 per cent had no data on whether they were prosecuting people for that.

We are talking about imposing sanctions on the people engaged in fraud, but there should be a corresponding sanction on local authorities that are not dealing with the problem. Perhaps the Minister could tell us whether the situation has improved on that which I have just described.

The Government are also engaged in a heavy advertising campaign. The posters are so apparent that I happen to have noticed them. Do we have any cost-benefit analysis of the advertising campaign? What further reduction do the Government expect as a result of it, and what is it costing?

Finally, I come to the question of hardship, on which the noble Earl, Lord Russell, spent a lot of time at earlier stages. We were all concerned about the possible effects of hardship. There was particular concern about whether someone who lost their housing benefit might then find that they were homeless because they were unable to make the payments on their home.

If I understood the noble Baroness correctly, she announced a change in policy on that. I thought that she said that the position of the people in the home would be protected if the head of the household had acted fraudulently. That is important and has implications for local authority funding.

I should like the Minister to bring us up to date on those matters. The Act was very important. Perhaps she could give us some indication of the extent to which the action taken under the regulations is expected to contribute towards the achievement of the Government's targets. I hope that she can clarify more precisely what those targets now are.

9 p.m.

Earl Russell

My Lords, several times during this afternoon's perambulations I have been reminded of the exam candidate who said that Sir Robert Walpole was extremely unpopular because of his exercise scheme. I must confess that, because of this unaccustomed exercise throughout the afternoon, my preparation for this debate has been a little less thorough than it might have been.

Lord Higgins

My Lords, I think that that was because Walpole let his sleeping dogs lie and did not take them for a walk.

Earl Russell

My Lords, yes he did indeed. It is pity that Ministers do not follow the same policy a little more often. Anyway, I offer my apologies to the House.

There is nothing new about fraud. One of my pupils once discovered a case of someone found begging outside St Margaret's Westminster in 1614, who was found to have in his pocket the sum of £30. That was between two and three years' wages for an ordinary labourer. He was to be dismissed on paying £5 to the Poor Box. He bargained it down to £4 and got off. He was clearly a seasoned felon.

Fraud is always with us; hostility to fraud is always with us. But one wants to try to make the punishment fit the crime. One of the curious things about the measure we are discussing is that, as it appears to me, it bites more heavily on the less serious than on the more serious offenders because it can bite only on those who actually have a benefit entitlement. If you have no benefit entitlement, you have nothing to forfeit under these provisions. Take, for example, the case in today's Times, headed, FA Cup hero faces jail over benefit fraud". The person in question is the holder of a Cup winner's medal and a former Manchester United player. The article states: During one 25-week period, Martin, 33, worked on television, 40 times, earning £11,300, while claiming jobseeker's allowance and council tax benefit". That sum is well above benefit levels.

If that person is deprived of his benefit entitlement, in Gibbon's words, he loses the superfluous treasure. He loses something which he does not have, so he is in effect not punished, whereas the equally fraudulent person whose income is nevertheless below benefit levels does suffer a punishment which his richer fellow offender does not. I do not follow the justice in that and I never have done.

The Minister also said that the regulations do not bring anyone into serious destitution. I should be very grateful when she replies if the Minister could tell us how she knows that and on what research evidence that is based. It was an extremely confident statement. If there is a source behind it, I should like to know it.

More generally, I should like to know what she believes is the effect on the adequacy of living standards of a 40 per cent reduction in benefit and what kind of sacrifices that involves. If she does not know that, will she at some time put herself in the way of finding out?

The same questions apply in relation to hardship. It is something of a perplexity to me why levels of hardship payments have been fixed at the point where they are. Is there any academic study which underlies the choice of that particular level of hardship payments? Why is it thought that hardship does not occur if there is a 20 per cent reduction whereas it will occur if there is a 40 per cent reduction? Does that rest on any empirical evidence, or is it simply a guess?

I take the Minister's point about Regulation 18; namely, that the dependants are freed from the effect of a reduction in housing benefit. One must welcome that. However, the Minister did not mention Regulation 17 which would impose on someone who does not have dependants a 40 per cent cut in housing benefit. Has the Minister considered the effect of that on a landlord who, of course, may be an equally guilty party but is not necessarily such and need not be assumed to be? Far too many landlords do not accept people who are on housing benefit. That makes housing people who are on benefit more difficult than it should he. Is it an incentive to a landlord to subject him to the potential for loss of income when he has not done anything at all that he should not? Has that angle been taken into account?

I also want to ask the Minister about one rather unexpected provision which is in Regulation 5(1)(d)(i) dealing with polygamous marriages where it is provided that there shall be hardship payments if one member of the polygamous marriage is pregnant. There is no provision made for two, or, indeed, I suppose, the hypothetical possibility that more than two members of the polygamous marriage may be pregnant. That, I should have thought, would have created even more hardship. One hopes that it will be taken care of some way or other.

Finally, I want to raise what I hope is simply a question of ambiguity. I refer to the final regulation, Regulation 27, which I shall try to quote exactly as I do not want to cause any misunderstanding. It arises from Regulation 21, but Regulation 27 is, I think, a numeration interpolated in another set of regulations.

Regulation 27 provides that, A decision of the Secretary of State that a sanctionable benefit … is not payable", cannot be a matter of appeal, where the only ground of appeal is that any of the convictions was erroneous". That could mean two things. It could mean that you cannot use an appeal against the certification to argue about the justice of the penalty, or it could mean that the fact that one of the convictions is actually erroneous does not remove the penalty. If it means the second—I think that I can take it from the Minister's body language that it does not—that would concern me. However, I should be glad if she could confirm that.

Baroness Hollis of Heigham

My Lords, I thank the noble Lord and the noble Earl for their comments. I should be even more grateful if I had been given even more notice of some of the more technical points, apart from that on polygamous marriages, which the noble Earl was kind enough to share with me. However, I shall do my best to respond.

I turn first to the points raised by the noble Lord, Lord Higgins. The point about the six-month rule for the Social Security Advisory Committee is basically that the regulations are still within the shadow cast by the debate on the Act and therefore in that context any parties who might otherwise be consulted by the Social Security Advisory Committee would have been involved in putting in submissions, lobbying etcetera on the Act. That is the reason for it. It seems rather foolish to consult the same groups one has consulted on the same matters when that was part of the framework Bill. However, I accept that there may be occasions on which that would be wise, but the matter seems to me fairly clear. We had full debates on it at the time. Therefore, perhaps in this case the noble Lord would agree that the discussions and the debate made very clear what the content of the regulations that followed would be and, therefore, that in that case consultation was redundant.

The noble Lord asked whether the measure was consistent with the ECHR. It is indeed. He then asked how we would apply the sanction within three years of the date of conviction. If someone is not on benefit following conviction, obviously there is nothing on which to bite. Clearly if, within three years, that person—I shall use the word "he" as a generic term—comes on to benefit, then the sanction will begin to bite. The central team will track cases and a decision on eligibility, benefits and sanctions will be made by decision-makers in the usual way. Have I understood the noble Lord's point on this matter? From his body language, I am not sure that I have.

Lord Higgins

My Lords, I am not sure. As I understand it, someone is convicted of a benefit offence when he is not on benefit. I have some slight difficulty in understanding how that can come about. However, if I understood correctly what the noble Baroness has just said, if within a period of three years someone came on to benefit, he would lose 40 per cent of it or thereabouts. It seems to me that the task of tracking such a situation will be extraordinarily difficult. It seems a very odd arrangement. The person in question has a sword hanging over his head depending on whether he subsequently goes on to benefit. It seems an extraordinarily strange arrangement.

Baroness Hollis of Heigham

On the contrary, my Lords. Such a person would have committed an offence the first time, would have been convicted by the courts and would then have received serious warnings. While still on benefit, he goes on to commit a second offence. It may well be that by the time the case comes to court he is no longer on benefit. Therefore, the question is: what does the department do, given that he has committed two offences involving benefit but, for whatever reason, he may simply have taken himself off benefit to avoid sanctions.

Our position is that if, over the next three years, he then goes back on to benefit, the sanction will come into play at that point. The sanction will be exactly the same as if he had received it at the time that the sentence was imposed on him. Therefore, the measure simply provides a way of preventing someone avoiding a sanction by coming off benefit for two or three weeks and then going back on to it again, whereas previously the time gap meant that the sanction no longer bit. That must be right, otherwise clearly the opportunities for manipulation are huge.

Lord Higgins

My Lords, I am most grateful. I understand what the noble Baroness is saying, but I need to think about it.

Baroness Hollis of Heigham

My Lords, I believe that the measure is only right and proper. If someone does not have the wit to come off benefit for a fortnight, he will experience sanctions, whereas someone who has the wit to come off it for a fortnight will not. We are saying, in effect, that this will bite within the three-year period.

The noble Lord asked how we arrive at the fraud estimates. We have moved away from the old system in which we had cases of confirmed fraud, highly suspected fraud and possible fraud and applied a 32-week multiplier. We now have a continuous programme of sampling cases from districts. A sample is drawn from all districts over a quarter. Two teams conduct the checks. The estimates of fraud and error are based on results from a random sample of people for the benefit concerned. In each case, the payment of benefit during a particular week is checked. The amount by which that week's benefit is incorrect is recorded and then the total weekly sum for each benefit lost is calculated with a sample in each location, and so on. I could go further into the methodology.

In other words, we have moved away from an extrapolation multiplied by 32, which, I have to say, I criticised heavily in opposition, into a system which is based as closely as possible on behaviour in particular district offices. That is the basis on which we calculate the estimates of fraud sums.

The noble Lord asked about fraud targets. I can confirm that, indeed, the figures of 25 per cent by 2004 and 50 per cent by 2006 remain our target. I believe that we had expected to claw back 10 per cent in the first year. We have exceeded that and the figure is now 18 per cent. That may be where the original cutting across lines happened.

The noble Lord talked about the increase in housing benefit and the problem of prosecuting housing benefit fraud. He is right; that has long remained a difficult area. However, I believe that the evidence suggests that local authorities now have the issue of prosecution in hand. For example, in the first six months of this year—2001–02—there were 686 successful prosecutions. That suggests a figure of 1,200 to 1,500 prosecutions—a significant increase on our figures in preceding years. That has been allied to the fact that we have made £160 million available to local authorities to operate the verification framework. By 2004 that will cover 85 per cent of HB expenditure.

Sixty per cent of councils have already adopted that verification framework and 367 local authorities have signed up to the department's "do not redirect" scheme. I am not trying to suggest that there is not still a considerable way to go, but I believe that it is the case that 60 per cent of local authorities are already within our verification framework; we expect to have 85 per cent of their expenditure covered by the year 2004; the rate of prosecution is increasing; and we are slowly beginning to see some of the benefits flowing from the interchange of common information between the department and local authorities which, after all, are administering a national benefit. I do not pretend other than that the performance is uneven and patchy across the country but we shall do our best to monitor it. We are investing £2 million this year on training up to 900 local authority fraud investigators. The department takes the matter seriously. Most local authorities are responding positively—although some are still not taking diligent action, as they need to do, on what is a big ticket crime.

The noble Lord asked about housing benefit and hardship. The maximum reduction in housing benefit is 40 per cent but that will apply only where it is not passported by income support. Even if the fraud is committed against housing benefit, that will be the last benefit on which the penalty will fall. If one receives income support or JSA, almost invariably the sanction would fall there—but not in 100 per cent of cases. One could be a low earner and get HB. If the offence were against HB at that point, it would be sanctioned. If one were an earner, the assumption would be that disposable income would be available through one's wages to make up the shortfall in rent as a result of the sanction. We have a hierarchy of benefits on which the sanction falls and HB is last in line.

Our best estimate is that, in the eyes of the courts, 500 people per year commit a benefit offence, so the benefit sanction is likely to bite on 500 households per year. The noble Lord asked how easy it will be to track the situation. The numbers are not great. For most offenders, the punishment handed out by the courts is enough—but there is a 5 per cent recidivist rate, which suggests that 500 or 550 people might fall within the regime every year.

The noble Earl, Lord Russell, said that the measure will bite more seriously on the less serious offences and that it will bite only on those who receive benefit. Yes, because that is the benefit being sanctioned. However, that will be in addition to the court's sanction.

The benefits fraud case involving a former professional footballer also caught my eye. That individual appears to have been earning £11,300 from TV appearances while claiming jobseeker's allowance. As he was not eligible to continue receiving benefits, the department could not sanction him but the court will punish him. I understand that sentence will not be handed down until January so I cannot say what it will be. I do not doubt that the court will take into account his mitigating financial circumstances and needs. It may be that the sentence will be appropriately more severe than might be the case for someone who remained on benefit.

Earl Russell

My Lords, I do not remember in the parent Act any instruction to the court to impose a lighter penalty on those who are already suffering a benefits sanction.

Baroness Hollis of Heigham

My Lords, it is the other way around. The benefit penalty will come into play only when the court has determined whether somebody has committed an offence for the second time. From my experience, one third of benefits offenders who go before the courts receive a conditional discharge. They are not usually former footballers who have been earning £11,300 and wilfully claiming extra money. They tend to be overwhelmed lone parents struggling with a child who might he unwell. In that context, the courts do discriminate between the circumstances of individual claimants. Someone who is not on benefit may receive a heavier punishment.

The noble Earl asked whether the hardship regime will result in serious destitution. Let us suppose that a lone parent with two children receives income support, £100 a week housing benefit and council tax benefit. Let us further suppose that that parent has been convicted not once but twice of benefit fraud and that the court has not given her an absolute discharge. Her current income from any sanction, including the value of housing benefit, would be £231.85. After the sanction, that figure would be £210—a drop of £20. I am not saying that the sanction will not bite but it will not cause destitution.

As to polygamous marriages, I understand that only one spouse in the relationship is regarded as a couple for the purposes of JSA. Other spouses are treated as dependants. If another spouse had a child, that would be a further dependant within the relationship who was entitled to income support.

On Regulation 27, it was suggested that the appeal was not erroneous. That involved establishing whether there was a challenge to the legitimacy of the court sentence. I am fairly confident that noble Lords will accept that it is reasonable that the benefits system cannot tackle that and that it should not he an appeal basis for a court sentence.

Lord Higgins

My Lords, the Minister mentioned that £160 million is being paid to local authorities to help them to catch benefit fraud. Have we any indication of' how much extra they expect to receive as a result? Other figures that she gave—for example, the fact that 500 people a year might he caught by the provisions—suggest that the amount that she expects to save is not proportionate to the amount being spent on trying to catch those people.

Baroness Hollis of Heigham

My Lords, I agree. The trouble is that in this context we are spending more than we may find out we have deterred, but we do not know how much we will save in total through deterrence. The noble Lord will be interested to know that whereas last year there were 1,000 prosecutions and in the previous year there were 860, the figure now is 50 per cent higher—there will be about 1,500 or 1,600 prosecutions. Given recidivist rates of about 5 per cent, it may be that about 50 prosecutions for housing benefit fraud will result in subsequent sanctions. With that information, I hope that I have helped noble Lords further to understand these extremely complex—and unsexy—regulations.

On Question, Motion agreed to.