§ Second Reading debate resumed.
§ 4.52 p.m.
§ Baroness Crawley
My Lords, I welcome the Social Security Fraud Bill as a major step forward in the ongoing campaign to eliminate fraud and error from the social security system. We spend over £100 billion each year on social security. It pays for pensions; helps people with illness and disability; and it helps families and those who are out of work. It is a huge amount of money. It is approximately one quarter of the entire government budget.
It is right that it is a huge amount of money because a properly funded social security system is the mark of a healthy redistributive democracy. The people of this country fund the social security system and they have every right to be angry at the estimation that each year £2 billion in benefits is stolen from that system. When the Government came to office in 1997 social security fraud was running at an estimated £2 billion to £4 billion a year. So, despite the scepticism of the noble 1065 Lord, Lord Higgins, some progress has been made to clamp down on those who defrauded the system in the intervening years.
The entire overseas development budget for the United Kingdom is £4 billion. Turning a blind eye to fraud on that scale is not acceptable. People who work and claim benefits illegally are not loveable rogues; it is theft from the public purse. As my noble friend the Minister stressed, it undermines confidence in the benefit system which is there to help people who are genuinely in need. A social security system that lacks credibility because it is seen as an easy touch is a system that becomes harder and harder for a progressive government to defend because of the huge sums of public money needed to maintain it properly in a healthy democracy. Therefore, great damage is done by fraudsters, not only to the current system but also to its future development.
My noble friend Lord Grabiner in his excellent report The Informal Economy was asked by the Chancellor of the Exchequer to investigate the problem of the hidden economy and to examine ways to move economic activity from illegitimate to legitimate businesses. He estimated that at any one time 120,000 people are fraudulently working and claiming benefits.
The Bill takes up many of the recommendations of my noble friend's report, including urging the Government to consider ways of using information from private sector and public sources as a cross check of the details provided by people. However, the Bill should be examined not only in the context of my noble friend's report but also in the light of the extensive consultation exercise conducted last summer by the Government, entitled Safeguarding Social Security: Getting the information we need.
Other measures that pre-date the Bill include the setting up of the benefit fraud hotline, the targeting fraud website, the framework which specifies minimum standards in verifying housing benefit and council tax benefit claims, and the Royal Mail's "do not redirect" powers to prevent fraudulent claimants using the Royal Mail's postal redirection arrangements to submit benefit claims from false addresses.
The main features of the Bill are to provide powers to reduce, and, in some cases, withdraw benefits from people convicted twice of benefit theft; to increase punishments for benefit fraud; to give new powers to obtain benefit fraud information from private and public sectors; to improve the direction of local authorities on benefit administration, which was a point raised by the noble Lord, Lord Higgins; and it will also tighten the requirements to report changed circumstances that affect benefit entitlement.
The Bill is a serious move by the Government to get to grips with social security fraud after decades of neglect. It is part of a strategy to tighten up the system and make sure that from the first claim the right benefits go to the right people at the right time. To take up the point made 1066 by the noble Earl, Lord Russell, we must always be vigilant about everyone's civil liberties in their interface with the social security system. I am sure that other noble Lords have also been contacted by groups such as Liberty which are concerned with this issue. But I believe that the Bill finds a balance between the fight against serious fraud and a claimant's right to privacy.
As my noble friend the Minister has stressed, no legitimate claimant has anything to fear from the Bill and should recognise the Bill's role in strengthening the system for us all in the future.
§ 4.58 p.m.
§ Baroness Strange
My Lords, this is an important and necessary Bill. All taxpayers, which means nearly everyone in this country, have suffered financially from people who have successfully and deliberately set out to defraud the system. As the Minister has said, the frauds have run into billions. She is quite right to try and stop the leak whereby much of our money is whipped away by a massive system of fraud.
I agree with everything she has said. But the words "war pensions" leapt to my eyes. Both war widows and war pensioners tend to be of a different generation from those to whom organised fraud is a way of life. No one is perfect in this world and there may just be the odd case here and there, but I will not have my splendid long-suffering uncomplaining ladies harried for the sake of a few possible rotten apples.
Mr Tom House, who is head of pensions for the Royal British Legion, told me that he has never come across any deliberately fraudulent cases from war widows or war pensioners in the 10 years he has worked there. During that time, he has dealt with 60,000 cases, and he currently has 8,000 to 10,000 war widows on his books. None of them has ever tried to commit fraud.
One of my ladies, who is a regional organiser, allowed a friend of hers who worked on an oil rig to park his car by her house while he was away. Some local informer reported that there was a strange man's car parked by her house for long periods. The pensions officials came to the conclusion that she was cohabiting while still illegally and fraudulently drawing her pension, and it was arbitrarily withdrawn. She herself had to bring a case and prove what in fact had happened; which she did successfully, and had her pension reinstated to the time when it had been removed. But, as your Lordships can imagine, it was all very upsetting for her. Is this the way to treat people who have sacrificed their loved ones for the good of their country? Are we living in a Nazi or communist state of secret informers? I sincerely hope not.
I do hope that the money saved from peering at and spying on innocent ladies and war pensioners will be better spent elsewhere. I very much hope that my noble friend will remove the words "war pensions" from the face of the Bill.
§ 5.1 p.m.
§ Baroness Noakes
My Lords, the extent of social security fraud is an unacceptable burden on the British taxpayer and we should support any measures designed to reduce it. As the Minister said, the Government have set a target in their public service agreements to reduce the amount of fraud and error in income support and jobseeker's allowance. That fraud and error alone are estimated to be running at more than £1.3 billion a year, a staggering 8.4 per cent of programme expenditure. We might think that the targets, which were described by the Minister as challenging—merely to halve that amount and taking until March 2006 to do it—are too soft, but I am sure we all agree that the amount must be significantly reduced. Another £600 million, or possibly more, of housing benefit is also thought to be lost, taking the total to more than £2 billion or even more. That £2 billion could buy 18 or 20 new NHS hospitals every year or it could be used to start to reverse the increasing tax burdens imposed by this Government.
There is no magic way to avoid fraud or error. One of the arts of business success is risk management. Businesses have to identify the key risks that affect their operations, including risks from fraud and error. They must install controls to eliminate or minimise those risks and then check that those controls are working. But 8.4 per cent of programme expenditure "lost" certainly indicates that something has to be done to improve the DSS's risk management.
We are told in the Explanatory Notes that the Bill will capture between £200 million and £400 million of benefit savings. That still leaves unaffected at least £1.6 billion of losses. It is therefore a relatively modest Bill in the whole scheme of things and I look forward in due course to hearing of more significant measures to reduce the losses.
I turn to the Bill itself. There are significant new powers for the DSS and others to obtain information. From my experience as an accountant, I am sure that effective controls to minimise losses due to fraud or error do need information. In principle, therefore, I support those parts of the Bill which give additional powers to the DSS and others to obtain information. However, I have significant reservations about the obligations that that will place on others. Clause 1 has a significant list of organisations from which those administering benefits will be able to demand information. That list can be added to by an order made under subsection (3) of Clause 1.
When we look at Clause 3, which deals with the payments to be made for this information, we can see how one-sided the trade will be. The clause gives the Secretary of State the power to require or authorise,in such cases as he thinks fit, the making of such payments as he considers appropriate".That is a very wide discretion.
This Bill is yet another piece of legislation creating burdens on businesses which have already experienced year-on-year increases in regulatory burdens under this Government. The provision of information will be a burde—it is not cost free. We may decide, reluctantly, 1068 that it is appropriate to impose this additional burden, but we should at least seek to mitigate the impact on the businesses affected by placing a positive obligation on the Secretary of State to ensure that he compensates those businesses for the costs that they will incur as a result of these new powers being exercised.
I note that the Government's own estimate, as set out in the Explanatory Notes, of the additional costs falling on businesses is in the range of £2.5 million to £7.6 million. I was surprised at the modesty of that figure and tried to look at the regulatory impact assessment to understand the assumptions that the Government have made. Paragraph 190 of the Explanatory Notes refer us to the DSS's website, www.dss.gov.uk, but I have to tell the Minister that as of yesterday morning I could find no trace of the regulatory impact assessment on that website, despite several increasingly complicated searches. I believe that the basis for those estimates needs the most careful scrutiny and I know that many organisations have expressed concerns about the potential costs. Whatever the truth about the costs imposed by the Bill, they are certainly greater than zero. I hope that the Government will think again about creating a positive obligation to recompense those on whom they will be imposing these new information requirements.
I hope that the Government will also look again at the list of potential beneficiaries set out in Clause 3, to which my noble friend Lord Higgins has already referred. It seems to me that there should be an alignment between those on whom the burdens may be placed by Clause 1 and those who should be recompensed under Clause 3. At present there is no such alignment. I cannot see why each of the categories of potential information providers should not in equity have the costs of these additional burdens met by the DSS or others. Why is it that banks and insurance companies are less deserving than, say, telecommunications providers?
One other aspect of the Bill concerns me; namely, the provisions in Clause 14 for fixed penalties to be offered to allegedly colluding employers in lieu of prosecution. I have seen the operation of something like that in the form of consent orders which are a part of the disciplinary procedures of my professional institute, the Institute of Chartered Accountants. That experience does not encourage me. Although introduced in the name of efficient administration, there is no doubt that it is seen by many chartered accountants as a weapon with which to beat them. The choice is pay up or go through the time-consuming, expensive and, probably worst of all, emotionally draining experience of the full disciplinary process. They generally pay up, guilty or not, so that they can get on with running their businesses.
I have a very real fear that this new power will be used to beat businesses, and especially small businesses. They will be treated as guilty until proven innocent. If a business believes that it has not committed an offence, it can choose to pay up or go to court to argue its case. The latter will be expensive and time consuming. It will certainly divert attention from running the business. In practical terms, the answer may well be to pay up. That 1069 might be good for raising revenue, but it is not good if innocent parties are coerced into paying fines in order to avoid the much worse prospect of a court case, which will cost them more in business terms even if they are successful in proving their innocence.
What is there in the Bill to ensure that Clause 14 will be operated reasonably? What is there to restrain the excessive zeal of DSS officials or others in their search for benefit fraud? Should not there be a kind of filtering mechanism to ensure that the Secretary of State makes the decision to offer a penalty only in reasonable and genuine cases?
§ Baroness Hollis of Heigham
My Lords, I wonder whether it would help the noble Baroness if I told her that the Federation of Small Businesses stands behind these proposals. The notion that we are taking blackmail money so that businesses can avoid court cases ought not to be proposed in this way.
§ Baroness Noakes
My Lords, I shall leave the point. All that I am saying is that there should be included within the legislation a counterbalance to ensure that the scales are not automatically tipped against business; otherwise this provision has the potential to be used as a severe power against small businessmen who have relatively few resources with which to defend themselves.
Tackling fraud and error in the administration of public finances is a positive duty of all governments. We should not resist sensible measures designed to make that task more effective. I look forward to discussing the Bill in more detail in Committee and I hope that the Government will ensure that their understandable desire to eliminate fraud will not result in an undesirable increase in burdens on business.
§ 5.11 p.m.
§ Lord Grabiner
My Lords, the purpose of the Bill is to introduce powers which would significantly improve the ability of the relevant departments of government to tackle benefit fraud and error. There are good grounds for believing that the amounts of money involved are substantial and that the increased powers which are proposed would, in a balanced way, have the effect of deterring fraudulent behaviour, while at the same time enhancing the detection rates for both fraud and error.
I should like to address three particular aspects of the Bill. However, before doing so I should like to mention a real life example which I came across when preparing my report for my right honourable friend the Chancellor of the Exchequer. My understanding is that this is a typical example. It illustrates some of the problems at which the Bill is directed. Furthermore, I think that the example will assist noble Lords in the process of developing a feel for the practical application of this proposed legislation.
What happened was this. DSS investigators began a surveillance exercise in relation to an individual whom they suspected of working and fraudulently claiming benefit. At around six o'clock in the evening, they 1070 followed him to what turned out to be one or other of half a dozen restaurants in the West End of London in or near Leicester Square. In the event, he turned out to be one of around 30 people, all of whom were obviously working for a single employer in the restaurant business. As the investigation developed, it became clear that many of the individuals were here illegally. They were not registered for PAYE and were paid in cash. Most, if not all of them, were claiming benefits. This was a classic example of collusion on the part of the employer, who was able to take account of the amount of benefits being received by his employees when deciding how much money he would pay them on top in the form of wages.
When challenged, the employer had the effrontery to show the investigators a software program on his office computer system which purported to confirm that all the people who worked for him were his employees and that he was properly accounting for PAYE and NICs to the Inland Revenue. The software was pure fabrication and had been designed to satisfy the possibility of a very cursory inquiry.
In my opinion, these facts reveal a shocking state of affairs. Here we have an employer who is obviously not disclosing his full profits, which means that corporation tax or business revenue tax is lost. VAT is lost. The VAT point is especially unattractive because it will have been collected by the employer through the food bills paid by his customers, but the proper amounts never reached Customs and Excise.
The employees were working and claiming benefit, which is simply fraudulent. The employees were also being exploited. They fell through the basic floor of rights provided by our employment protection legislation, which is designed to give them all the advantages which are associated with lawful employment, including the right to redundancy benefits, the right not to be unfairly dismissed, the minimum wage legislation and a whole host of other elements. In addition, no national insurance contributions were being made in respect of these people.
I was surprised to discover that the penalty imposed on the employer was a paltry fine of £750. That is not because the sentencing court made a hash of it. It is because the employer, who pleaded guilty, was charged only with a single, sample offence of making a false statement to DSS officials.
A few points can be made about this example. First, the employer was at the centre of the web. Without the collusive employer, this type of case could not happen. Secondly, the activities have a cross-departmental impact. The facts would be of interest to the Treasury, Customs and Excise, the DfEE, including the Employment Service, the DSS and the Benefits Agency, the Inland Revenue and the Home Office. It brings out the importance of ensuring, so far as is possible, that this problem is examined at a focal point at the departmental end of the story, otherwise it may fall between departments. It also emphasises the need to share information, which is an important part of the record-keeping and detection process.
1071 Thirdly, I believe that this example—there are plenty more—should give rise to concern in all parts of the House. I believe that every noble Lord who has spoken so far has been in agreement on this point. It seems to me that this is not at all a party political issue, but rather that honest citizens are rightly fed up with fraudsters and fiddlers who get a free ride and, for the most part, are perceived to be getting away with it.
Fourthly, it is also a matter of great concern that many people and their dependent families who get into this murky world find themselves unable to obtain regular, lawful employment simply because they are not able to provide any employment track record to a potential genuine employer.
I should now like to say a few words about three aspects of the Bill; namely, the proposal to increase the powers of obtaining and sharing information, the proposal to disqualify for a period of 13 weeks persons convicted of two benefits offences in the space of three years and the separate proposal to introduce an administrative penalty as an alternative to criminal prosecution.
As regards the first point, Clause 1 of the Bill would give increased powers to obtain information from the private sector, such as banks and credit card companies about particular individuals. The fraudulent activity at which the Bill is aimed necessarily involves someone telling a lie; for example, as regards whether they have a job, whether they have savings, whether they have a partner who is working, where they live, who they are or whether they are in education.
These proposed powers are designed to enable fraud investigators to get to the truth. They will provide an independent method of checking or verifying the facts which have already been provided by the claimant. This type of legislation must obviously comply with the requirements of the Human Rights Act. In particular, the new powers must be compatible with Article 8 of the convention. This is always a question of balance, fairness and common sense. Every citizen has the right to respect for his private and family life, his home and his correspondence. The convention does, however, permit that right to be interfered with in an appropriate case.
In order to be justified, Article 8 requires that the interference must be in accordance with the law. It must also be necessary in the sense that it is the minimum interference necessary having regard to the economic well-being of the country, or the need to prevent crime, or the protection of the rights and freedoms of others. I have, in effect, summarised the provisions of the second paragraph of Article 8.
The legal basis for the interference would, of course, be the Bill, if and when it becomes law. It seems to me that all of the other justifications to which I have referred apply here. My noble friend the Minister has given a number of real life examples, in addition to the one that I have mentioned, which emphasise the seriousness of these matters and the need for this legislation. The Bill contains provisions which will, I believe, ensure fair play and make a reasonable balance 1072 between, on the one hand, the protection of private liberty and, on the other hand, the protection of the public purse.
First, these new powers are to be conferred only on an authorised officer, which means a DSS fraud investigator acting with the authority of the Secretary of State. Secondly, information about specific individuals can be sought only where there are reasonable grounds for believing any of the matters which are specified in subsection (2C) on page 2 of the Bill. The noble Earl, Lord Russell, adverted to those provisions in his speech.
The expression "reasonable grounds for believing" is a well-established formula. It means that suspicious or discriminatory motives, such as sex, race, colour, language, religion and all the other matters listed in Article 14 of the European Convention on Human Rights, could never justify the use of these powers.
In regard to that issue, I should like to pick up the point made by the noble Lord, Lord Higgins. He told the House that the British Bankers Association had expressed concern that the provisions may be used for the purpose of fishing expeditions. If they were so used, that would be entirely inappropriate and unlawful.
We shall obviously be studying the detail at later stages of the Bill, but it is worth making reference to the ground given in paragraph (c)—the provision specifically referred to by the noble Earl—which concerns a person belonging to any description of persons who are more likely than others to fall within the earlier paragraphs (a) or (b).
The pressure group Liberty, in its Second Reading briefing paper, has expressed some concern about this provision. Perhaps I may say that I do not, with respect, accept Liberty's substantive criticism, which is that this provision would be used in a way which is inconsistent with Article 14. For the reasons that I have already given, I do not believe that there is any justification for this expressed concern.
The justification for paragraph (c)—
§ Earl Russell
My Lords, I am grateful to the noble Lord. No one is alleging that there is any ministerial intent to abuse these powers in this way, but does the noble Lord concede that there is a real Actonian danger that they may nevertheless be so abused?
§ Lord Grabiner
My Lords, in a sense, that is true whenever powers are granted. One has to have regard to the fact that there is a possibility that powers, when granted, may be abused. However, if the powers are abused, it is to be hoped that that will become apparent and plain and that the appropriate remedies will be made available, either through the process of judicial review or the appeal process to be provided in this legislation. The concern that such an abuse may happen is not a justification for not introducing the provision.
§ Earl Russell
My Lords, does the noble Lord concede that some powers lead people into more temptation than others?
§ Lord Grabiner
My Lords, of course they do, as we know. Even then I would suggest that that does not 1073 provide justification for not assuming the powers and getting on with the job that needs to be undertaken. It is simply not good enough to say that it is too difficult a problem or that there are people out there who may behave in an improper fashion. That is not a good enough answer to the problem. We have to take a bit of courage and have a bit of conviction here because we are confronted with a serious problem.
Perhaps I may now say something about the justification for paragraph (c) and give a couple of practical examples. Investigators might reasonably take the view that someone who has previously committed benefit fraud is more likely to be fraudulent again. Another example might be the discovery of the fact that someone regularly advertises some business activity in a telephone box or in a newsagent's window but pays no tax or VAT and may or may not be claiming benefit at the same time. I suggest that it is reasonable and necessary to have these powers if we want to deal with the problem.
The third important protection is the one mentioned by my noble friend the Minister. There will be a published code of practice which will put some flesh on these provisions and make them precise and accessible. Also the provision will not, as I understand it, be operated until after the code of practice has been published.
Perhaps I may now turn to the subject of data protection. This is an aspect of the debate about human rights under the Bill. I suspect that it will be readily accepted on all sides that the benefit system is under attack from the opportunist and from organised fraudsters. On that assumption, a judgment has to be made as to the extent to which it is necessary for the prevention and detection of crime or the collection of taxes to have these powers. For the reasons that I have already mentioned, I would suggest that there is a pressing need for them.
In the context of data protection, perhaps I may take up the point made by the noble Lord, Lord Higgins—with which I respectfully agree—about the concerns of individuals whose records may be the subject of investigation under the Clause 1 powers. When I was preparing my report, I discussed this matter with one of the principal providers in this territory. I learnt that it is possible, or would be possible, for DSS investigators, for example, to cause inquiries to be made into data knowledge without leaving a footprint. A subsequent inquiry about a particular person by a third party—for example, a supplier of credit to the individual—would not have revealed to him the fact that the DSS had trodden in that territory previously. There is a real prospect of sound protection of the integrity of the position of an individual who may be the subject of an inquiry along these lines. Such inquiries may be made without damaging that person. Undoubtedly it would damage that person if a subsequent provider of credit were to discover that such an investigation had been made.
Perhaps I may next turn to Clauses 6 to 12 of the Bill, which contain the proposal that persons convicted of two benefit offences in the space of three years should be 1074 disqualified from receiving benefits for a period of 13 weeks. I dealt with this point in paragraphs 7.32 to 7.36 of my report.
My understanding is that this approach is used in some parts of the United States and Canada. The approach adopted in the Bill is consistent with the current rules for jobseekers' allowance, whereby benefit payments can be withheld for a specific period if jobseekers unreasonably cause or prolong their unemployment—for example, if they leave or refuse to take a job without good reasons. The sanction period is between one and 26 weeks under those rules. It is obviously necessary to have safeguards in order to protect the innocent and the vulnerable. We shall, no doubt, examine the details at later stages of the Bill, but there are hardship provisions in the Bill.
The point that I would emphasise is that these disqualification provisions are intended primarily to operate as a deterrent. The hope must be that the legislation will have a full public impact and that would-be wrongdoers will be encouraged into the legitimate economy. The problem is that under the present regime there is no disincentive to re-offend. That is why these provisions are so important.
The third point that I want to highlight is the new proposed procedure that would enable the Secretary of State or, as the case may be, an authority administering housing benefit or council tax benefit to agree a civil penalty with an employer who has, for example, facilitated the commission of a benefit offence by a relevant employee.
The pre-condition for the new procedure is that there are grounds for bringing proceedings against the colluding employer but, by agreement between the parties, an administrative penalty is exacted and there are no criminal proceedings. This is a valuable addition to the investigators' armoury. This machinery is likely to lead to a greater awareness among employers as to the risks they run and, it is to be hoped, an increased respect for the law. The new procedure would bring the point home to employers without the need to invoke the full force of a criminal prosecution. It is also likely to result in cost/benefit efficiencies. I do not accept the points made on this aspect of the matter by the noble Baroness, Lady Noakes, whatever may be the motivation of individual accountants when confronted with complaints about their behaviour. I do not think that we are in that territory. The purpose of this piece of machinery is to impose the quality of the performance and to bring home to people, without the need for full-blown criminal proceedings, that what they are doing is wrongful activity.
In conclusion, perhaps I may mention a point raised by the noble Lord, Lord Higgins, on the question of amnesties. I examined the idea carefully, because I was initially very attracted by it. Indeed, when I was asked by my right honourable friend the Chancellor of the Exchequer to look into the question, he, too, was initially attracted by the thought. I do not think that I am telling any tales out of school.
However, having examined some American research—the idea has been tried in a number of states—I discovered, first, that it was usually 1075 introduced around election time with a view to securing the right result from electors, there being apparently quite a large number of people who fell into this category, each of whom had a vote—and who may even have had the ability and the strength to press the button hard enough to produce a valid and admissible vote! But also, the impact in America was that this was treated simply as a "free lunch". The expectation was that one amnesty would simply be followed by another. Such a scheme was also rather expensive to administer. So at the end of the day it did not seem an appropriate way forward. There is also some evidence that this approach was tried, and failed, in Italy—but I say that from memory, going back 18 months or so. I certainly examined the idea but did not think it appropriate to recommend it. Indeed, at the end of the day I am fairly strongly opposed to such an idea, but it was given careful consideration.
§ 5.33 p.m.
§ Baroness Fookes
My Lords, I rise with some diffidence after that masterly exposition by the noble Lord, Lord Grabiner. I noted particularly his vivid example of the restaurateur who was the centre of a web of fraud and deception. But I am concerned to know how the figure of approximately £2 billion of loss—which is obviously a matter of considerable concern—could possibly be arrived at, given that in the nature of things the fraud has been undetected. I presume that there must be some method of so doing. I should be grateful if the Minister could either indicate that in replying or, if there is no time for such a luxury, let me know subsequently.
I rather regret one absence from the Bill, because it is something of a hobby-horse of mine. I refer to the absence of any reference to identity cards. They would be a comparatively simple, easy way of ensuring people's identity. They have a value far beyond anything to do with fraud. If they were extended to everyone, they would have all manner of advantages.
I suspect that the Minister will tell me that this goes far beyond the scope of the Bill. That illustrates perfectly the point made by the noble Earl, Lord Russell, about the disadvantages of single-issue Bills when it is not possible to take wider issues into account. That is also true of the question of preventing loss through error as opposed to fraud. There would be far less error if the social security system were considerably simpler than it is now. Again, the noble Earl's dictum applies; that goes beyond the scope of the Bill. It means that we set out somewhat "hobbled".
Perhaps I may turn to the concern expressed by the noble Baroness, Lady Strange, for war pensioners and war widows. I share that concern, as vice-president of the War Widows Association, of which the noble Baroness is president. I strongly suspect that there will be no way in which the Minister will remove from the Long Title the reference to war pensions. I hope that at the very least there will be considerable delicacy in dealing with these matters.
The pressure that will be put on businesses has been pointed out by several speakers. However, no one has mentioned the issue of small businesses. The pressures 1076 on them if they are required to provide information will be even greater than it will on big business, which no doubt has the facilities to deal with the matter. It seems to me that likely fraudsters will be employed by small businesses rather than large businesses, because they can pass in and out of employment regularly and simply. I worry about that point in relation to small businesses.
I also note the confident statement in the Explanatory Notes that the Bill will have no impact on charities and voluntary organisations. That seems a somewhat sweeping assertion. I am not sure what the basis for it is, given that many organisations and charities employ people to work professionally for them. I should be interested to know why the statement was made and how confident we can he. Many voluntary organisations and charities work on a shoestring and may find it difficult to comply without interfering with their genuine, excellent work.
I turn now to the memorandum of the British Bankers' Association. It contains many questions and worries which need to be dealt with. I need not tell the Minister about the devil being in the detail, hearing in mind her responsibility for the Child Support Agency, a brilliant idea which nearly came to grief and ca used considerable aggravation because of the way the detail was worked out. I take it seriously when the British Bankers' Association writes to us with its worries. Perhaps I may mention one or two of them.
The association states the importance of having one common channel of approach to the bank from the various organisations such as the Inland Revenue or Customs and Excise, and that the bank should have one particular department or particular people to deal with the matter. It mentions its current, very real worry that even at present some junior bank staff are being approached by authorities such as the Inland Revenue with requests for information. It also presents a security risk in that the wrong information could get out or could get into the wrong hands. The point must be addressed carefully.
The association also raises other questions. Will the provision apply only to personal accounts, or will it be extended to business accounts and single trader accounts? And what about joint accounts? In terms of human rights, that seems to me to be particularly important. If only one of the holders of a joint account is under suspicion, while the other is not, what about the rights of the person who is not under suspicion? Presumably, all the information will have to be given if a proper assessment is to be made of the situation.
Finally, there is the question of electronic banking, which seems to be becoming increasingly important. I am not sure what the position is in relation to the Bill, but I should be grateful if we could be given some indication of what is likely to be an ever-increasing method of banking.
As I say, I have some reservations about the Bill, although no one could quarrel with the intentions behind it. There seems to me to be a number of concerns that I hope we shall consider in more detail during the Committee stage. In the meantime, one cannot but give the Bill a welcome, albeit one tempered by reservations.
§ 5.40 p.m.
§ Lord Desai
My Lords, I, too, broadly welcome the Bill because it tries to tackle an important issue. I have lived in this country for 35 years and no year has passed without some government Minister saying, "We must tackle benefit fraud; it is a very serious problem". The number of cases continues to increase. I know exactly how to estimate, though not actually calculate, such numbers. It is not an easy task, but if you have at least some observed fraud you can make an estimate of the unobserved fraud. There are sophisticated techniques in that respect and the people who invented them got the "Nobel prize" in the latest round of economical prizes. I should add that I used to teach these things.
If a certain amount of money is being defrauded it is always a question of knowing the exact number of cases involved. Of course, we have a margin of error around it. However, one way to predict who might cheat is basically to look at what we call "the characteristics"—that is, the personal characteristics of those involved. For example, we may have a sample of people who have cheated which will enable us to classify them in terms of, say, sex, race, occupation, and so on. That is how we can increase the chance of predicting who is likely to cheat. After all, this is information. Incidentally, that is done without any intention of violating any human rights Act. From this information we can assess the probability of someone cheating by considering, for example, whether he is single, the nature of his occupation, or whether or not he is black, as the case may be. Indeed, hundreds of articles have been written on the subject.
That brings me to my major worry about the Bill; namely, the new subsection (2C) to Section 109B of the Social Security Administration Act 1992, as set out in Clause 1. I believe that we are all worried about this subsection. I shall begin with the wording that worries me the most which is to be found in subsection (2C)(c). That paragraph refers to,a person belonging to any description of persons who are more likely than others to fall within paragraph (a) or (b) above".I know of no way of implementing that provision without using some characteristic profile of that class of persons. When we refer to a class of persons, it is very hard not to start making judgments about Rastafarians, builders, homosexuals—or even fat professors, or whatever!
There is a great danger here. I am sure that people will undertake such assessments with great care, but once consideration is given to,persons who are more likely [to offend] than others",if they belong to a particular set of persons, that can only be defined by some or other element that will violate Article 14 of the convention on human rights. I am not a lawyer; I am an econometrician. But I believe that people will make such statements without meaning to offend.
I am also worried about paragraphs (a) and (b) of this new subsection, especially where reference is made to a person who "is likely to contravene" or "likely to commit" fraud. Again, this is a matter of forecasting the probability that someone is likely to offend, as 1078 happened under the football hooligans Bill; and that upset me very much. That legislation gave the police the power to stop someone from travelling, not because he had committed an offence but because he was thought likely to commit an offence abroad. I remember sitting in the Chamber until five o'clock in the morning while we deliberated that Bill. As I say, I was very upset by that provision but, not being a lawyer, there was not very much that I could do about it.
There is a creeping tendency to presume guilt, or to presume the likelihood of committing an offence, before a person has committed an offence. It happened under the football hooligans Bill and it is happening here under this Bill. When we considered the RIP Bill—I always forget what is stands for, though perhaps it was the "repression of internet providers", or whatever—that legislation contained some gross invasions of privacy, which were allowed to stand. It is a worrying tendency.
I know that my noble friend the Minister is a sensitive person and that the Government are equally sensitive. I do not doubt that everyone involved in this is very good. But things happen further down the line. I am especially worried about the leaking of information, whereby matters that are supposed to be confidential are leaked to tabloid newspapers for money. Therefore, even if the intention of the legislation is not to invade people's privacy, we can end up doing so.
Obviously, if someone has contravened or is contravening relevant social security legislation, there is absolutely no problem. Indeed, I have in mind the blood-curdling tales that my noble friend described earlier. I entirely agree with her: those cases relate to evil people and they must be punished. That is not my concern. However, we are dealing with the lower depths of society, as it were, where the criminals and the poor are very hard to distinguish because they are mixed together. It is easy for poorer people to be caught. I am not worried about the fact that race may be an element in this respect, but poor people very often fall foul of the law and are unable to defend themselves.
I am also seriously worried about paragraph (d) of new subsection (2C) which says that someone who,is a member of the family of a person falling within paragraph (a), (b) or (c)",could be investigated. Because of the way that "the family" is defined so as to include people who are separated—indeed, the case of domestic violence was mentioned whereby a man could shop his wife, whom he has beaten up and who has subsequently left him—we could have considerable problems regarding the likelihood of a gross miscarriage of justice. I put it no stronger.
Those are my main worries about the Bill. On the whole, I believe that it will do its job. However, while doing its job, I believe that it will give the Secretary of State slightly more powers than are strictly necessary. I was heartened when my noble friend told us about the success that the department is having at present at capturing some of the fraudsters without such legislation. I believe that we ought to continue along 1079 those lines. If this Bill is to be enacted, we really ought to consider most carefully the excessive powers that it is proposed to give to the Secretary of State.
§ 5.48 p.m.
§ Lord Astor of Hever
My Lords, I welcome the opportunity to wind up the debate for the Opposition after what has been a characteristically well informed debate. We have heard some powerful speeches this afternoon. I agree with my noble friend Lord Higgins and the noble Baroness, Lady Crawley, on the excellence of the report by the noble Lord, Lord Grabiner. Like my noble friend, I found that document very readable. I agree with the noble Lord, Lord Grabiner, that honest citizens are fed up with benefit fraud. We on these Benches are grateful to him for his clarification of his views on amnesties. The noble Baroness, Lady Strange, and my noble friend Lady Fookes both mentioned war widows. I shall return later to that subject.
My noble friend Lady Noakes made a powerful speech. I very much hope that she will pursue her arguments, particularly with regard to the burdens on businesses, at later stages of the Bill.
The Minister told the House that benefit fraud costs taxpayers at least £2 billion per annum and probably more. My noble friend Lord Higgins mentioned an estimate of —7 billion. We all agree that it is far too high. We on these Benches therefore wholeheartedly endorse the principle of tackling benefit fraud in a fair, comprehensive and effective manner.
Where we depart from the Government's approach and, indeed, from major aspects of the Bill, is that their proposals are, yet again, long on rhetoric and short on action. This is, after all, the 43rd, 44th or 45th government announcement on the subject of fraud, yet fraud has got worse. Why will the 45th announcement make any difference? Headline statements are no substitute for genuine reform.
What we need is benefit simplification, not complication, particularly over housing benefit. I have here the 85 regulatory changes to housing benefit dumped on local authorities since May 1997. The Bill does nothing to simplify the complex benefits system. Few DSS officials, excepting, of course, the ones present tonight, understand the system in any detail. According to the Chartered Institute of Taxation, the form for the working families' tax credit is so complicated that fewer than one in 10 tax inspectors are capable of filling it in correctly.
A serious attack on fraud would require not only simplification and more resources, as my noble friend Lord Higgins said, but also restructuring of the benefits system. The CAB is critical that the Bill does not address errors in payment of benefit, or areas where reforms to the benefits system could significantly improve the accuracy of benefit payments.
The Bill contains many subjects which we shall want to scrutinise carefully in Committee and at later stages of the Bill. I shall confine my remarks to three specific areas of concern. These are the impact on business; the human rights aspects of the Bill; and war widows.
1080 The Bill contains sweeping powers to compel various private sector businesses to share information with both central and local government agencies involved in tackling benefit fraud. Again, the Government continue their tendency to place much of the burden of responsibility on businesses, along with the associated costs.
If relevant information may be obtained securely, without threatening innocent people's privacy and with limited cost to business, we on these Benches welcome that approach. We are concerned, however, that the Government's estimates do not adequately state the situation. In its submission to the Bill, the credit industry fraud avoidance system reported that one High Street bank would require 38 additional staff to handle the labour-intensive production of large volumes of information by DSS staff at a total cost of £14 million per annum. Another bank estimates a requirement for 20 staff.
This concern is, indeed, exacerbated by the total discretion that the Bill gives to the Secretary of State—here I agree with the noble Lord, Lord Desai—on whether costs will be reimbursed at a commercial rate. Can the Minister reassure the House that there has been a meaningful dialogue between the Government and those companies named in the Bill to ensure that the figures anticipated by the Government are credible and agreed by both parties?
Several noble Lords, particularly my noble friend Lady Fookes, mentioned the BBA concerns. As the Bill is currently drafted, any DSS officer, as authorised by the Secretary of State, can approach a bank for information about an individual. This is very different from existing processes. The Government say that there will be a code of practice governing the DSS's actions. The BBA would prefer, particularly as such a code has not yet been drawn up, that safeguards are written on the face of the Bill. It is also concerned about the wide definition of people about whom a DSS officer can require information. This targets groups of people rather than individuals about whom there are real grounds for suspicion. A benefit claimant could be deemed likely to commit a benefit offence, effectively stigmatising an entire group. In our view, bank information should be disclosed only where there are reasonable grounds for suspecting fraud.
The Scottish Law Society is concerned that, if granted, these powers could be used routinely and arbitrarily in circumstances where there is no reasonable suspicion of fraudulent activity or criminal conduct. The noble Earl, Lord Russell, and the noble Lord, Lord Desai, were both concerned that the Bill will allow investigators to investigate people on the basis of their ethnic origin. That concern is shared by Liberty, which points out that the Bill has the potential to be harmful to race relations both because it will allow people to feel that they may be targeted because of their ethnicity and because it will encourage investigators to see ethnicity as a relevant factor in their investigations.
The BBA also argues that banks should be protected against inadvertently disclosing information as a result of inadequate or incorrect identifying data supplied by 1081 the DSS. The electricity suppliers are concerned at the potential costs and data protection aspects of giving online access to information they hold. Dealing with a huge number of requests for information from both the DSS and local authorities—they expect over 90,000 each year—imposes substantial costs on them. The Bill allows the Secretary of State to make payments to utility companies for the bulk information they provide. The Secretary of State may make payments where he considers that reasonable, but need not do so if he thinks that it is not appropriate. That situation is clearly unsatisfactory.
In practical terms, costs to the electricity suppliers will also be affected by the codes of practice yet to be agreed. It is essential that DSS officers ensure the minimum possible duplication of effort in requests for information both from within the DSS and between the DSS and local authorities.
The telecoms sector alone—this does not include the Internet service providers—expects to receive about 90,000 inquiries each year. The time period during which they store historic data is crucial. Archiving and retrieval costs are very high and the potential threat of the Data Protection and Human Rights Acts is forcing some mobile phone companies to destroy data over six months old.
The loss of that data will have a negative effect on investigations into benefit fraud. It is surely the case that the sheer backlog of work and the time necessary to complete investigations will mean that proposed data will need to be stored for a number of years. Will the Minister tell the House how long the Government believe that the necessary information should be stored?
Furthermore, what dialogue has taken place with the information providers cited in the Bill to meet these requirements? What recompense will the Government make so that they are able to comply with the set-up and ongoing costs of prolonged data warehousing?
The Bill would allow an agency to identify any individual employee as the person to whom it sends a request for information, thus subjecting that person to possible criminal sanctions and a fine of £1,000 plus £40 each day if he or she does not comply. Is that really the Government's intention, particularly if an individual is not in a position to comply?
As regards the telecommunication and ISP companies, to whom do the Government envisage that requests will be made? It will surely speed up and assist the investigatory process if there are certain, named managers to whom requests can be made. We also suggest that there should be a single point of contact—the authorised officer within the DSS or local authority—at a suitably senior level to provide the necessary validation and authorisation of all information requests.
The powers given to benefit fraud inspectors are becoming more and more powerful. If that continues, they will soon have more powers than the police. What concrete provisions will the Government make to ensure that there are stringent safeguards ensuring that 1082 the required level of training is established and maintained? A quick glance at the Benefit Fraud Inspectorate reveals how under-resourced, under-trained and overburdened are the local authority staff who try to administer benefits. Indeed, the Benefit Fraud Inspectorate annual report said that,in 93 per cent of our inspections we found inadequate staff training".Among those to whom I have spoken, there is also considerable anxiety that much benefit fraud occurs with the complicity of DSS staff. The survey, Staff Attitudes to Security in the Benefits Agency, revealed the existence of "sleeper rings" where an official joins the agency intending to commit fraud. Once he understands working methods, he defrauds the system with an outside accomplice.
Until the Government can demonstrate that the information they will compel the private sector to provide will be secure, and that the personnel and financial costs will not be excessive, we shall have serious reservations about their approach.
A number of points relate to the human rights aspects of the Bill. The DSS wishes to have extra powers to gain access to various private sector sources. It is, therefore, essential that the Government confirm that the Bill falls within Articles 8 and 14 of the European Convention on Human Rights. The Data Protection Commissioner and Liberty take the view that the Bill does not. Will the Minister confirm that there is no inconsistency? The Data Protection Commissioner has made a number of important observations. Have the Government considered those points, or ignored them?
Having access to highly sensitive personal information, the benefits agencies must ensure that it is used only for the specified purposes of investigation and prosecution. To that end, we regard it as important for there to be a defined code of conduct and stringent guidelines in place for the access and use of information. If those guidelines are breached and data is accidentally or deliberately disclosed, we believe that the perpetrators should be dealt with with the utmost severity.
The Minister mentioned the improper use of information with other countries. Will provisions be put in place to ensure that any misuse of information about UK citizens will result in reciprocity being revoked? Will the DSS ensure that countries with which information is exchanged will have the same regard to human rights and data protection as the UK?
The Minister touched briefly on Scotland. The Scottish Law Society points out that Clauses 13 and 14 appear to have been drafted without taking account of the distinct prosecution system in Scotland. I shall be grateful if the Minister will clarify how the Government envisage the Bill operating in Scotland.
I turn now to the inclusion of war pensions in the Bill. Like the noble Baroness, Lady Strange, I have spoken to the Royal British legion, SSAFA and the War Widows Association. All are concerned and surprised that the Government have yet again made those bodies such a high profile target. The head of the pensions 1083 department at the Royal British Legion told me that he has never seen a single case that would indicate any form of fraud—not a sniff of it.
§ Baroness Hollis of Heigham
My Lords, I am sure the noble Lord does not wish to overstate the position. I take issue with the phrase that we have made them a "high profile target". We have merely not omitted them from the list of all the other recipients of benefits from whom proper controls, inspections and information are required.
§ Lord Astor of Hever
My Lords, I take the noble Baroness's point. However, the numbers must be minuscule. Perhaps the Minister can give the House an idea of the number of fraudulent war widows. On the War Pensions Agency's own figures, from June to December 2000 there was evidence of abuse in only 114 cases from around 100,000 pensioners in receipt of a war pension.
I reiterate that we on these Benches are fully behind real attempts to tackle the growing menace of benefit fraud. With each year such fraud is costing hard-pressed British taxpayers many billions of pounds which could be used elsewhere. This diverts much needed resources and attention from those who are most in need. What indicators of success, therefore, will the Government introduce for the Bill?
There is much still to be debated in the Bill. We on these Benches look forward to returning to it in detail in Committee and at later stages.
§ 6.7 p.m.
§ Baroness Hollis of Heigham
My Lords, this is an important issue although it is a small Bill. It is important because, as my noble friend Lady Crawley said, the amount lost for taxpayers by fraud could well exceed the amount we spend on overseas development. The figure is substantial. I was pleased, as I am sure were other noble Lords, to hear the thoughtful and well-informed debate from around the Chamber, for which I am grateful. I am also grateful that the need to deal with fraud and its pervasiveness attracts such wide support. I always pale when phrases such as "getting the balance right" are used. No one disagrees with the phrase, it is the meaning that we dispute, although I am confident, as always, that the Government have got the balance right.
In seeking to wind up, I make the usual disclaimer. If I inadvertently omit any point, or run out of time—that is the more likely—I shall write to noble Lords. For example, I hope that the noble Lord, Lord Astor, will allow me to write to him on Scotland. I have all the information here but it is elaborate. It might be better to write to him and I am happy to put a copy of the letter in the Library so that other noble Lords may take advantage of that.
I shall respond to three general points: timetable, responses and the scale of fraud. I shall refer to the four major points raised: the use of powers, safeguards, human rights issues and the burdens on business. If time permits, I shall deal with some of the more specific one-off points which have arisen in the debate.
1084 The first general point related to the timetable. The noble Lord, Lord Higgins, said that there was not time to comment on the Bill. The main measures of the Bill were set out in the White Paper, Safeguarding Social Security, which was published last July. Organisations and members of the public were given three months to comment. The report of my noble friend Lord Grabiner was published as long ago as March 2000. I accept that this debate comes immediately after the vacation but I do not think that organisations could argue reasonably that they have been short changed on consultation time.
The noble Lord also asked whether we intended to put copies of the consultation responses in the Libraries. We have published a summary—although I take the point that it is a summary of a summary—and, in addition, anyone who wants copies of the responses may apply and will receive them from the department. We do not normally place copies of all responses in the Libraries because the bulk of them can become a storage problem, but I shall ensure that the noble Lord and any others who are interested are sent a full set of the responses to work on.
The noble Earl, Lord Russell, also asked whether we could see the draft code of practice. We have promised to involve the organisations affected by the Bill in the drafting of the code. The first meeting to discuss the code will take place next week. A draft will then be prepared for further discussion.
The third general point, raised by the noble Earl, Lord Russell, and the noble Baroness, Lady Fookes, was the scale of fraud and how we arrived at our estimate of £2 billion of fraud. We estimated the figure through our programme of benefit reviews, which take a random sample of claimants who are subjected to a detailed investigation, including home visits. The number and volume of frauds identified are grossed up to produce a total national estimate. That is supported by area studies, sampling and covert activities. We cannot have firm figures, but, as my noble friend Lord Desai said, we use the best methods that we have, with sampling, detailed follow-up surveys and area-based studies. However, the noble Baroness is right that the figure remains approximate.
The first major point of issue embodied in the Bill, as opposed to process points, was the use that we expect to make of the powers. Many of your Lordships asked about that. The measures could in no way be used to permit discrimination. A person's race, sex or disability do not predetermine whether they are more likely to commit fraud and the Bill does not provide for inquiries on that basis. The powers can be used only when there is statistical evidence to support targeted inquiries. I have two examples. First, we know from our area benefit reviews that income support claimants who have committed fraud before are 70 per cent more likely than other income support claimants to commit fraud. Such a differential surely justifies targeting those who have committed fraud in the past.
Secondly, we know from experience that local areas may have activities or occupations that are particular to them. Window cleaners and gardeners sometimes advertise their services by telephone number only in the 1085 local press. If the local fraud investigation service noticed an increase in fraud among such groups in its locality, the powers could be used to identify the subscribers to those telephone numbers, cross-check them against benefit records and investigate anyone who was claiming benefit while advertising such a service. Those are the issues that we are concerned about.
§ Earl Russell
My Lords, does the Minister see any danger that that approach might reduce the number of window cleaners?
§ Baroness Hollis of Heigham
My Lords, I hope that the measure will ensure that window cleaners do not simultaneously ask for cash in hand and draw benefit. Instead, they should charge their customers, including the noble Earl, Lord Russell, the going rate for the job so that they do not need to milk the informal economy.
The noble Earl asked a serious question about other forms of discrimination, including on the grounds of sexual orientation. I took that point. Inquiries on that basis are not provided for and they would be unlawful. We shall make that plain in the code of practice that will govern the operation of the powers. Given the concern of the noble Earl and others, it is right that we should make that transparent in the code of practice.
The noble Lord, Lord Higgins, asked whether DSS inquiries would affect credit ratings. My noble friend Lord Grabiner said that we can now do that with credit agencies without leaving a footprint that could affect someone's credit rating.
§ Lord Higgins
My Lords, I was slightly puzzled by the response of the noble Lord, Lord Grabiner, on that point. Clearly the credit agency will know and the footprint of the inquiry will be all over its documents.
§ Baroness Hollis of Heigham
My Lords, we shall make arrangements with the credit reference agencies to ensure that nobody accessing their records will be able to detect that the DSS has looked at a person's credit record. In that sense, the information should not go on to other, inappropriate sources.
§ Lord Higgins
But, my Lords, the credit agency will know that someone is suspect and will therefore adjust its rating of the person's credit.
§ Baroness Hollis of Heigham
My Lords, there are two points here. First, maybe they should. Secondly, the broader point is that we are talking about individual staff members of the credit reference agency. They will not be able to detect the footfall, because the DSS will not leave it behind after interrogating the records.
That brings me to a related point that the noble Lord raised about the banks' concerns for the civil liberties of their customers. I think that I detected a tongue-in-cheek response from the noble Lord when he made the point. Obviously, banks have a proper concern, although they may be more concerned to retain their customers' trust in their probity. That is an honourable 1086 and decent thing to wish to do. Many bank customers might be a little surprised if they ever got round to reading the tiny print—smaller than telephone directory print—that usually goes with bank statements encouraging people to open new accounts, which allows banks and credit reference agencies to exchange information far beyond what most of us imagine. In some cases, that exchange of information is even beyond what the DSS is seeking. That concern may be a little curious when the banks already exchange information affecting their clients as part of protecting the security of their business.
The noble Lord also asked whether local authority staff could wander off and interrogate individual bank staff—the problem of centralised information. DSS and local authority staff will make arrangements to obtain information in writing. We are talking to those from whom the information will be sought to agree appropriate administrative arrangements for requiring information using the powers.
The second point was about safeguards. We already provide strong safeguards against a person obtaining or disclosing information unlawfully. We have a Data Protection Act that makes it an offence knowingly or recklessly to obtain or disclose information, with fines of up to £5,000 and an unlimited fine in the Crown Court. Secondly, Section 123 of the Social Security Administration Act 1992 provides for the specific offence of unlawfully disclosing information obtained during social security administration. That covers staff who are working or have worked on social security administration in the DSS and local authorities. It provides for severe penalties, including imprisonment. Finally, the Computer Misuse Act 1990 contains offences relating specifically to the misuse of computers to obtain information. It provides for a maximum of five years in prison. I do not think that we need additional provisions.
However, as the noble Lord, Lord Astor, said, we also have additional administrative safeguards in the quality and training of our staff. Only authorised staff can use the powers. We anticipate authorising only a handful of staff in each of the 13 administrative areas to ensure that the powers are used only by specialists. The detailed code of practice will bind investigators and can be obtained by organisations and members of the public, who can then hold them accountable against it. DSS staff authorised to use the powers will be trained by our professionalism and security programme, which is also available to local authorities. The staff will be securely chosen, checked and trained. If the system breaks down, tough disciplinary procedures will follow. If any of your Lordships have any further worries, I shall be happy to respond in correspondence.
The noble Earl, Lord Russell, asked whether we could guarantee that the information would not be given to anyone else. The only obvious recipient that we can think of is the Inland Revenue, which is already permitted. Unlawful disclosure of information is an offence punishable by imprisonment for up to two years.
1087 I was also asked how long the DSS would hold on to its records. We normally destroy such records after about 18 months, but if a fraud prosecution was under way, we would hang on to them until it had concluded. Finally, on the point about information, the noble Baroness, Lady Fookes, asked about charities. The provisions relate only to information about customers, not the relationship between employers and employees.
The third issue of substance was human rights and interaction with data protection. My noble friend Lord Grabiner dealt with that powerfully. His arguments were unanswerable. The Data Protection Commissioner has questioned whether the powers to obtain information are necessary and whether they are sufficiently precise and accessible in order to comply with the European Convention on Human Rights. I would argue, as did my noble friend, that so long as some claimants lie to us, as they do—that is the definition of "fraud"—those powers are necessary.
If benefits cheats did not lie to us and were not fraudulent, I would agree with the Data Protection Commissioner that we could obtain the information that we need from the claimant. However, by definition, if the claimant is fraudulent, he will lie to us or refuse us access to information. I gave an example in which we suspected someone in the building trade who had large sums of money going into his bank account. He refused us access. If the Data Protection Commissioner's concerns were upheld, we would not be able to obtain information about such a fraud because the person concerned could refuse us access to his bank account. That fraud, which may involve a sum of £10,000 or £50,000, could go unchecked because those powers would be denied us.
A question of balance arises, and I respect that. However, I believe that your Lordships will understand our difficulties. If claimants have sole control over the information which we can obtain about them, by definition the very people whom we suspect will be those who deny us access to that information. It is very difficult to square that circle in good faith. That does not mean that the powers should not be exercised properly according to a code of guidance by staff who are properly trained and managed. However, it is a circle that we cannot otherwise square.
§ Earl Russell
My Lords, perhaps I may narrow an area of difference. I did not hear any noble Lord today suggest that no such powers should exist. The argument concerned whether the powers are defined correctly.
§ Baroness Hollis of Heigham
My Lords, I suspect that I may have a slightly different reading of this matter. I was being pressed as to whether the Data Protection Commissioner believed that the powers were compatible with Articles 8 and 14 of the Human Rights Act. That is what I was seeking to address.
I was going on to say that, together with the Secretary of State, I shall be meeting the Data Protection Commissioner shortly to explain why in our judgment and following our legal advice we believe that the powers comply with the European Convention on Human Rights and to discuss her concerns. However, I 1088 can assure the House that my understanding is that the powers meet the convention's tests of being precise and accessible because we would not use them until a detailed code of practice had been published. The Data Protection Commissioner would be consulted on the draft code of practice and claimants would also be informed that their information may be checked with third parties.
§ Lord Higgins
My Lords, I apologise for intervening again and am grateful to the noble Baroness. Will she give us an indication about timing so far as concerns the code of practice; that is, will this House have an opportunity to examine the code before the Bill makes much further progress?
§ Baroness Hollis of Heigham
No, my Lords. We have already started to hold negotiations and discussions with bodies about the draft code. However, I understand that the draft code will be published well before any of this Bill comes into effect.
Perhaps I may now move to the final substantive point raised by several noble Lords in relation to burdens on business. The noble Baroness, Lady Noakes, said that it was unreasonable that the Bill should place a burden on employers. It is intended that such a burden should be placed where employers have colluded with their employees to commit benefit fraud; for example, by paying lower wages, as in the example described by my noble friend Lord Grabiner, thereby giving themselves an unfair competitive advantage over lawful employers. In those cases, we mean precisely for the Bill to be burdensome.
Business organisations support our view and not that of the noble Baroness, Lady Noakes. The Federation of Small Businesses, for example, told us that it supports Clause 14 because it will help it to deter the collusive employer and thus give greater protection to the lawful employer. The notion that the DSS is intending to run a protection racket by extracting £1,000 fines as an alternative to taking a case to court because it wants to increase its coffers seems to me to suggest a degree of fancy that one would not expect from a noble Baroness who commands such high esteem in her profession of accountancy.
I was asked whether the estimated costs to businesses in the regulatory impact assessment were net or gross. They are gross. I am sorry that that information is not on the website. The RIA should be included by the end of this month.
In relation to payments, the noble Baroness, Lady Fookes, asked me in particular whether the legislation would affect disproportionately small businesses and whether that would be unfair. We expect the measures to impinge primarily upon larger businesses. The only small businesses—as opposed to collusive employers, who, I agree, are likely to run smaller businesses—which we believe will be affected in terms of the costs of provision of information are, I suspect, cheque cashing shops. The Cheque Cashiers' Association supported our proposals in its response to our consultative document.
1089 Having dealt with the big points—that is, the use of the powers, the safeguards, the human rights issues and the burdens on business—I should like to spend one or two minutes running through some of the more specific and detailed points, which are no less important but perhaps less thematic.
First, the noble Lord, Lord Higgins, asked what response we had received to the Scampion report. We have taken on board the report's general recommendations by setting up the national benefit intelligence unit, headed by a former deputy director of MI5. We have strengthened the organised benefit fraud investigation service, now headed by the former head of investigations at Customs & Excise. The two units will work well together in an intelligence-led approach to tackling fraud. We are setting up a joint working group with local authorities and, as a result, are replacing the weekly benefit savings scheme for them.
I move to a totally different point. As I said, this is "shopping list" time; therefore, I hope that your Lordships will forgive me. The noble Earl, Lord Russell, asked why we needed the words "or likely to" in new Section (2C) in relation to obtaining information. He was worried that that indicated a fishing trip and wondered whether we were assuming guilt before having reasonable grounds to do so. The reason why we require powers to investigate is that, for example, a person may well not have committed an offence but may have two national insurance numbers. We would want to know why. Another example is that a person may be found with a large number of order books which he is about to encash but has not yet done so. It is that type of example—
§ Earl Russell
My Lords, I am most grateful to the Minister. I take her point about those cases. However, would they not be covered by the words "reasonable grounds to suspect fraud" without invoking the words "are likely to"?
§ Baroness Hollis of Heigham
My Lords, I shall certainly look at the legislation to discover whether the word "reasonable" is preferable to the words "likely to". However, at present where we have reasonable grounds and believe that the action may occur reasonably precipitously, that is the basis on which we have statutory authority for our actions. However, I shall see whether the wording should be clarified or, indeed, whether any guidance would make it clear.
The noble Lord, Lord Higgins, also asked about CIFAS—the central service for financial organisations—and how information swapping was progressing. Department officials will meet CIFAS and the finance organisations next week. They will discuss what information we hold which may be made available to banks and insurance companies.
However, clearly we must also be careful about what information we give them because information accessed through credit reference agencies is sometimes less secure than is information held by the DSS. The noble Lord may be somewhat surprised at the 1090 information which flashes up on the screen each time he pays for his petrol bill with a credit card. We must take care that certain information is not passed on which then goes to the local small garage which is processing the card. We want to be constructive and reasonable but we also have a duty of care, as the noble Lord will understand, particularly when one is dealing with sensitive questions about, for example, family relationships and so on.
Both the noble Earl, Lord Russell, and the noble Baroness, Lady Noakes, asked whether the power to add to the list of organisations that can be required to provide information gave us carte blanche powers by regulation. First, this is an affirmative order. I know that the noble Earl, Lord Russell, will be delighted about that. We could deal with such a power only by returning to this House for authority. Its main purpose concerns the fact that types of organisation change. We need to be able to have access to those organisations because they have changed without having to come back for primary legislation. However, that would be carried out by affirmative order and therefore proper parliamentary scrutiny would take place.
I turn to a point which I take most seriously. The noble Earl, Lord Russell, asked whether we would guarantee that information that we hold about asylum seekers would not be given to their—I was about to say "host"—enemy government, if I may express it in that manner. I give a categorical assurance that that would absolutely not be the case.
The noble Baroness, Lady Fookes, asked about identity cards. She was absolutely right—that is beyond the scope of the Bill, and not, I may say, for entirely accidental reasons. Other countries that have identity cards have found that such cards can be forged. When there is a single gateway—the identity card—that is forged, a whole array of services opens up. Oddly, our rather more bumbling approach, which has several different gateways, may in those cases serve to act as some protection against fraud. However, that is not a simple issue, and having an identity card would not necessarily hugely increase our security arrangements, although it would alter the way in which we approached the issue.
The noble Baroness, Lady Fookes, also asked about joint bank accounts. I take her point, especially in relation to women. In my experience, joint bank accounts are normally held between family members. One of the major areas of fraud tends to affect family members. For example, one family member may be working and the other claiming benefit. If she has other worries about that matter which do not involve family members, perhaps she would let me know and I shall seek to address her concerns. I shall give my response about Scotland in a letter.
The noble Lord, Lord Higgins, asked about funding local authority investigations. An authority will receive a subsidy for the fraud that it detects and should see financial benefit from the outcome.
1091 Finally, I turn to the last substantive item; that is, war pensioners. It was raised by several noble Lords, including my noble friend Lady Strange—I persist in calling her my noble friend although she sits on the Cross Benches. It was also raised by the noble Baroness, Lady Fookes, and the noble Lord, Lord Astor. I emphasise the fact that war pensioners seldom, if ever, commit fraud. So far as I am aware, we have detected only six frauds during the past six months involving war pensions. That rate is far lower than for mainstream benefits. The areas in which fraud is likely to occur are not necessarily because the war pensioner is fraudulent—someone else may be making false claims on his behalf. Occasionally, with regard to treatment allowance, there are false claims about attendance for treatment. There can also be a failure to declare an increase in earnings or to declare employment. Previously—I am delighted to say that, as a result of the activity of my noble friend Lady Strange, this is now almost unheard of—there had also been a failure to declare that people were living as husband and wife. That is now no longer an issue, because one may retain the benefit.
We have not brought a prosecution for war pensions fraud, although that has been considered in some cases. There has to be a good reason for excluding that from the shopping list that we are looking at. What are we saying? That for someone to lose his benefit, he had to commit a fraudulent offence knowingly, willingly and maliciously, as certified by the courts, not once but twice. Does any noble Lord really suggest that a war pensioner who knowingly, willingly and maliciously committed a fraud—I agree that it is extremely unlikely—and if he lied and cheated and was found guilty not once but twice by the courts, should continue to enjoy a high level of benefit? I do not think so. It is inconceivable that that would happen, but, nonetheless, in the very rare case that it does, I do not think that the noble Lord, Lord Astor, would want the benefit to continue. That would bring into disrepute war pensions that were honourably and properly earned, deserved, held and cashed by other war pensioners. I hope that no noble Lord believes that there is an issue in this context; there is not. I cannot conceive of any reason why the case should be excluded.
I shall close on that last point. I have used enough of your Lordships' time. I shall write to noble Lords about any points that I have not dealt with. I thank noble Lords for our well-informed, courteous and interesting debate, and I seek their co-operation in trying to improve the Bill. What matters at the end of the day is that we eradicate fraud not just to save money for the taxpayer but to re-build confidence in the welfare system, especially for pensioners, who are often reluctant to claim. I shall seek the help of noble Lords in so doing. I commend the Bill to the House.
On Question, Bill read a second time, and committed to a Committee of the Whole House.