House of Commons - Explanatory Note
Social Security Fraud Bill [Hl] - continued          House of Commons

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COMMENTARY ON CLAUSES 7 TO 13

Clause 7: Loss of benefit for commission of benefit offences

105.      This clause contains provisions to remove or reduce benefit from offenders who have been convicted twice of benefit fraud within a period of three years.

106.      Subsection (1) provides for benefit to be reduced or withdrawn where an offender is convicted on more than one occasion of specified benefit offences. Benefit withdrawal or reduction is triggered when an offender is convicted of one or more benefit offences in each of two separate sets of proceedings. The offence for which the second set of proceedings has been brought must occur within a period of three years of the date on which the offender was convicted for the first offence. Where this happens the offender will have all sanctionable benefits in payment withdrawn or reduced for the period of the sanction.

107.      Subsection (2) introduces a "disqualification period", which is the time for which the benefit will be reduced or withdrawn. Subsection (6) further prescribes the period as beginning at a prescribed time after conviction for the second offence.

108.      Subsection (3) provides for Income Support to be paid at a reduced rate for the prescribed period rather than withdrawn completely. Details of the reduction will be prescribed in regulations. The broad intention is that the reduction will be similar to that which will apply in Jobseeker's Allowance cases where hardship is established.

109.      Subsection (4) enables regulations to be made to provide that Jobseeker's Allowance claimants may be eligible for a reduced rate of benefit during the prescribed period providing they satisfy certain conditions. The intention is that these conditions will be similar to the hardship provisions that currently apply with Jobseeker's Allowance.

110.      Subsection (5) enables regulations to be made to provide that Housing Benefit and Council Tax Benefit claimants will be eligible for a reduced rate of benefit during all or part of any disqualifying period. The intention is that a person entitled to Housing Benefit or Council Tax Benefit who becomes subject to sanction under the new clauses should, if any Income Support or Jobseeker's Allowance remains payable under subsections (3) and (4), remain entitled to full Housing Benefit and Council Tax Benefit. Where these benefits are not payable, the Housing Benefit and Council Tax Benefit entitlement will be reduced by a sum specified in regulations.

111.      Subsection (6) provides that where an offender has been convicted twice of benefit fraud within the period specified within subsection (1), the sanction will be a period of 13 weeks commencing at the prescribed time after conviction for the second offence.

112.      Subsection (7) provides that in the event if a successful appeal against either of the convictions that resulted in the imposition of a sanction, then all payments that would have been made but for the sanction are to be made as if no restriction had been imposed.

113.      Subsection (8) sets out definitions of the terms used within this provision.

114.     Subsection (9) provides further definition of the meaning of conviction as used within this provision.

115.      Subsection (10) provides that the sanction shall not take effect under this clause where it has already taken effect for the same convictions under the equivalent Northern Ireland legislation. It also allows a sanction to be imposed where a previous sanction took effect for a period within the same disqualifying period (e.g. where it has taken effect for part of that period in relation to a relative under clause 8 and then takes effect in relation to the offender himself for the rest of the period).

116.      Subsection (11) provides that for the extent that the clause applies in Northern Ireland, the only sanctionable benefit that this clause will apply to is a War Pension.

Clause 8: Effect of offence on joint-claim Jobseeker's Allowance

117.      This clause sets out how the fraud sanction provisions will apply to joint-claim Jobseeker's Allowance as introduced by section 59 of, and Schedule 7 to, the Welfare Reform and Pensions Act 1999. These provisions are to be commenced on 19 March 2001.

118.      Subsection (1) provides for the provisions of subsections (2) and (3) to apply where a joint-claim couple are entitled, or become entitled to joint-claim Jobseeker's Allowance and the fraud sanction is applicable to at least one of the couple.

119.      Subsection (2) provides that no joint claim Jobseeker's Allowance will be payable where both members of the couple are subject to a fraud sanction, or where one member is subject to a fraud sanction and the other is already subject to a sanction pursuant to section 20A of the Jobseeker's Act 1995, or to a community sentence sanction as detailed in subsection (2) of section 62 of the Child Support, Pensions and Social Security Act 2000.

120.      Subsection (3) provides that where only one member of a couple is subject to a fraud sanction and the other member is not subject to any sanction, the amount of Jobseeker's Allowance payable will be reduced to an amount calculated in a prescribed way and will be paid to the other member of the couple who is not subject to the sanction.

121.     Subsection (4) provides for hardship payments to be made in cases where both members of a joint-claim couple for Jobseeker's Allowance are subject to a fraud sanction, or where one member is subject to a fraud sanction and the other is sanctioned for employment-related reasons imposed under section 19 of the Jobseeker's Act 1995, or the restriction introduced in subsection (2) of section 62 of the Child Support, Pensions and Social Security Act 2000.

122.     Subsection (5) prescribes that the reduced amount payable, referred to in subsection (3), will be calculated in the same way as prescribed in section 20A of the Jobseeker's Act 1995.

123.     Subsection (6) provides that in the event if a successful appeal against either of the convictions that resulted in the imposition of a sanction, then all payments that would have been made but for the sanction are to be made as if no restriction had been imposed.

Clause 9: Effect of offence on benefits for members of offender's family

124.      This clause allows the Secretary of State to prescribe in regulations that certain benefits shall be lost or reduced where a member of an offender's family claims benefit in respect of the offender during the period of disqualification.

125.      Subsection (1) prescribes the income-related benefits to which the clause relates.

126.      Subsection (2) prescribes the cases in respect of which such regulations may be made under this clause. These are cases where a member of the offender's family becomes entitled to, and would be paid, one of the benefits listed in subsection (1) during the disqualification period and entitlement to, or the amount of that benefit, is determined by reference to the offender.

127.      Subsection (3), as in clause 7(3), prescribes that where the offender's family member is entitled to Income Support, regulations may be made reducing his applicable amount in the prescribed manner. The intention is that the reduction will be similar to that which will apply in Jobseeker's Allowance cases where hardship is established.

128.      Subsection (4) prescribes that where the offender's family member is entitled to Jobseeker's Allowance, regulations may be made reducing the rate of the allowance providing that it shall only be payable on compliance with certain obligations or the provision of certain information. The broad intent is that the partner may receive any allowances in respect of themselves and their dependants but any personal allowance payable for the offender will be withdrawn during the prescribed period.

129.      Subsection (5), as in clause 7(5), prescribes that where the offender's family member is entitled to Housing Benefit or Council Tax Benefit, regulations may be made reducing the rate of the benefit and providing that benefit shall only be payable in prescribed circumstances. The intention is that where an underlying entitlement to Jobseeker's Allowance or Income Support remains, either for the offender, partner or any dependants, full Housing Benefit or Council Tax Benefit will remain payable. Where these benefits are not payable, the Housing Benefit or Council Tax Benefit entitlement will be reduced by a sum specified in regulations.

130.      Subsection (6) provides that in the event if a successful appeal against either of the convictions that resulted in the imposition of a sanction, then all payments that would have been made but for the sanction are to be made.

Clause 10: Power to supplement and mitigate loss of benefit provisions

131.      This clause contains definitions and further regulation-making powers enabling the scheme of benefit offence sanctions to be modified.

132.     Subsection (1) allows the Secretary of State to provide by regulations that certain benefits shall be disqualifying but not sanctionable, or to exclude benefits from the scheme altogether by specifying them as neither disqualifying nor sanctionable benefits. It is intended to provide the Secretary of State with the flexibility to change the scope of the scheme where it is appropriate to do so.

133.      Subsection (2) allows the Secretary of State to prescribe regulations for certain parts of a claimant's benefit to be exempted from restriction, where that part is already being deducted from benefit and paid to a third party. For example, the Child Support reforms brought in under the Child Support, Pensions and Social Security Act 2000 introduced compulsory deductions from the benefits of absent parents. These are then passed on to the parent with care. In circumstances such as these the intention is that benefit payment is withdrawn or reduced apart from amounts subject to the amount of compulsory maintenance deductions which are to be paid over to the parents with care in the normal way.

134.      Subsection (3) sets out definitions of the terms used within this provision.

Clause 11: Loss of benefit regulations

136.      This section contains provisions about the making of regulations by the Secretary of State.

137.      Subsection (1) defines the term 'prescribed' to mean prescribed by, or in accordance with, regulations made by the Secretary of State.

138.      Subsection (2) provides for all regulations under these provisions, other than those regulations referred to in subsection (3), to be made by the negative resolution procedure.

139.      Subsection (3) lists the regulations that require the affirmative resolution procedure. These are:

a) regulations that prescribe any additional benefits that are to be treated as disqualifying but not sanctionable benefits for the purposes of clause 7;

b) regulations to prescribe a reduced amount of Income Support to be paid to a claimant, or a member of the offender's family, who is subject to a fraud sanction;

c) regulations prescribing the circumstances in which reduced hardship payments are to be made, and the amount, where the sanction applies to a single claimant on Jobseeker's Allowance, or where both members of a joint-claim couple are subject to a sanction. This subsection also applies to regulations prescribing a reduced amount of Housing Benefit or Council Tax Benefit to be paid to a claimant, or member of the offenders family, who is subject to a fraud sanction;

d) regulations prescribing a reduced amount of a joint-claim Jobseeker's Allowance where one member of a couple is subject to sanction.

140.      Subsection (4) applies provisions of the Social Security Administration Act 1992 allowing the regulation-making powers in clauses 7 to 10 to be used in such a way as to make different provisions for different classes of cases, imposing conditions or creating exceptions. It also enables the regulations to include incidental, consequential and transitional provisions.

141.     Subsection (5) provides that regulations under these measures can include different provision for different areas.

Clause 12: Consequential amendments

142.      Subsection (1) makes a consequential amendment to the 'breach of Community Order' provisions in the Child Support, Pensions and Social Security Act 2000 in relation to joint claims to Jobseeker's Allowance. It allows sanctions under this Bill to be taken into account when determining the sanction to which a joint-claim couple is subject under that Act.

143.      Subsection (2) creates a right of appeal against the decision that a benefit has to be reduced or withdrawn.

144.      Subsection (3) adds the Social Security Fraud Act 2001 to the definitions of "relevant enactments and relevant Northern Ireland enactments" in section 170 of the Social Security Administration Act 1992 (functions of the Social Security Advisory Committee in relation to the relevant enactments and the relevant Northern Ireland enactments).

Clause 13: Interpretation of sections

145.     This clause contains a number of further definitions that are applied from other Acts.

PENALTIES AS AN ALTERNATIVE TO PROSECUTION

Clause 14

Delegation of functions

Background

146.     Section 15 of the Social Security Administration (Fraud) Act 1997 introduced a new administrative penalty, with the insertion of new section 115A into the Social Security Administration Act 1992. The provision applies "where an overpayment is recoverable from a person by, or due from a person to, the Secretary of State or an authority that administers Housing Benefit or Council Tax Benefit (as defined in the Social Security Administration Act 1992) and it appears to the Secretary of State or authority that administers Housing Benefit or Council Tax Benefit that:

(a) the making of the overpayment was attributable to an act or omission on the part of that person; and

(b) there are grounds for instituting against him proceedings for an offence (under this Act or any other enactment) relating to the overpayment."

147.     Where the provisions in sub-section (1) apply, then the Secretary of State or authority may give to the person a written notice:

(a) stating that he may be invited to agree to pay a penalty and that, if he does so in the manner specified by the Secretary of State or authority, no such proceedings will be instituted against him; and

(b) containing such information relating to the operation of this section as may be prescribed."

148.     The structure of these provisions is based on the premise that the Secretary of State and authorities administering Housing Benefit or Council Tax Benefit will act independently of each other in the administration of the penalty system. This reflects the fact that they have statutory responsibility for different benefits. In particular, sections 134 and 139 Social Security Administration Act 1992 confer a statutory duty upon authorities administering Housing Benefit or Council Tax Benefit to administer Housing Benefit and Council Tax Benefit respectively.

The measures in the Bill

149.     The policy is to introduce powers that will facilitate closer working between the Secretary of State and authorities administering Housing Benefit or Council Tax Benefit in the operation of the administrative penalty system. At present, where a benefit offence results in overpayments of Housing Benefit or Council Tax Benefit and another benefit and both the Benefits Agency and the authorities administering Housing Benefit or Council Tax Benefit decide to offer an administrative penalty, each will handle the process separately. This means two interviews and two sets of papers for the claimant.

150.     The aim is both to make the system easier for those persons who may be subject to more than one penalty, and to streamline administrative procedures by enabling the Department and the relevant authority to act together in offering the penalty. This means one interview, not two, and one gross sum recovered. However, the process of recovery will still be the business of DSS and the authority respectively.

COMMENTARY ON CLAUSE 14

Delegation of Functions

151.     This clause inserts two new subsections into section 115A of the Social Security Administration Act 1992.

152.     Subsection (7A) allows the Secretary of State and an authority administering Housing Benefit or Council Tax Benefit to agree to exercise functions under section 115A on each other's behalf or to act together in exercising those functions.

153.     Subsection (7B) precludes the Secretary of State or an authority administering Housing Benefit or Council Tax Benefit from deciding on the other's behalf to offer an administrative penalty.

Clause 15

Colluding Employers

Background

154.     The report by Lord Grabiner concluded that very few offenders are punished. Prosecution in particular takes up large amounts of staff time, so the undoubted deterrent effect it has must be balanced against the high cost. Generally, it is used only in the more serious cases.

155.     An administrative penalty, offered to a colluding employer as an alternative to prosecution, will provide a useful additional tool to target these cases. It will go some way to streamline the sometimes cumbersome prosecution process. In addition to rationalising management of the case, administering the penalty more swiftly following discovery of the offence should have a deterrent effect on the employer and others contemplating a similar offence.

156.     The existing sanctions regime, which includes penalties as an alternative to prosecution for benefit claimants provides a precedent and many details of how such a scheme might work in practice are already established. These include offering penalties only in cases where prosecution is a viable alternative should the offender refuse to accept the penalty offer. The offer is made on the basis that, once it has been accepted, the Department will not then prosecute for that offence, subject to a 28-day cooling-off period during which the person is free to withdraw his acceptance.

157.     The administrative penalty builds upon the report's recommendations, which aim to deter and punish people who are working in the hidden economy. This is compatible with other Government policies, which aim to encourage people to move into a legitimate lifestyle.

The measures in the Bill

158.     This measure introduces a new discretionary power, which provides for the payment of a financial penalty, as an alternative to prosecution. This applies in circumstances where the Secretary of State or authority responsible for administering Housing Benefit or Council Tax Benefit has sufficient evidence to institute proceedings (or request that the Lord Advocate or procurator fiscal consider proceedings in respect of the clause's application in Scotland) against an employer for either of the following kinds of offence:

159.     The first kind of offence is one committed in connection with an inquiry into the employment of one or more employees. It will involve the hindering of an investigation. In these circumstances the employer may be offered a penalty of £1,000 as an alternative to prosecution. The second kind of offence may involve particular claimants, and will relate to acts or omissions that help those claimants to commit offences. In these circumstances the employer may be offered a higher penalty, as an alternative to prosecution, of £1,000 multiplied by the number of employees involved in the fraud, up to a maximum sum of £5,000.

160.     The penalty may be offered to those organisations or people who employ persons to work in any capacity: it will cover all cases in which a claimant works directly for another person, including cases where the claimant is self-employed. The penalty applies not only to the person (or company) who is the actual employer but also to individuals who are within the same organisation and who have a delegated responsibility to appoint staff.

161.     The measures include a regulation-making power to prescribe the information to be included in the written notice which informs the employer that a penalty may be offered.

162.     The employer will not be prosecuted for conduct for which the penalty has been offered where he has made an agreement to pay the penalty. The measures include provision for the employer to withdraw agreement to pay the penalty within 28 days from the date of the agreement. Non-agreement or withdrawal of agreement may result in prosecution for the conduct for which the penalty was offered.

          163.     The measure provides that an unpaid penalty may be recovered as a civil debt, or by deduction from social security benefit where the employer is a claimant and in receipt of benefit.

COMMENTARY ON CLAUSE 15

Colluding Employers

164. This clause inserts a new section 115B into the Social Security Administration Act 1992.

165.     Subsection (1) provides for section 115B to apply where the Secretary of State for Social Security or an authority responsible for administering Housing Benefit or Council Tax Benefit considers that there are grounds for instituting proceedings (or grounds for referral to the Lord Advocate or procurator fiscal to consider proceedings in respect of the clause's application in Scotland) against a person for an offence in respect of conduct of a type defined in subsection (2). The person is referred to in section 115B as "the responsible person".

166.      Subsection (2) defines the conduct for which there must be evidence of to prosecute. This is either:

(a) conduct which constitutes an offence under the Social Security Administration Act 1992 in connection with an investigation into the employment of one or more employees, or

(b) conduct, which is such as to assist an employee to commit a benefit offence, whether an actual offence occurred or not.

167.     Subsection (3) defines how the Secretary of State offers the invitation to pay a financial penalty and the information he must supply when he does so: the Secretary of State issues a written notice, which informs the 'responsible person' that he may be invited to agree to pay a penalty and that, if he does so in the specified manner, he will not be prosecuted for an offence for conduct described in subsection (2) (and the case will not be referred to the Lord Advocate or procurator fiscal to consider prosecution in respect of the clause's application in Scotland). This subsection also includes a regulation-making power to prescribe other information, which the Secretary of State must supply.

168.     Subsection (4) provides that if the penalty is accepted it may under subsection (4)(a) be recovered as a civil debt and by deduction from benefit in circumstances where the recipient of the penalty notice is in receipt of a relevant social security benefit. Subsection (4)(b) provides that if the penalty is accepted no criminal proceedings for the specific conduct to which the penalty relates will be instituted (and the case will not be referred to the Lord Advocate or procurator fiscal to consider prosecution in respect of the clause's application in Scotland). Section 71(10) of the Social Security Administration Act 1992 (which relates to benefit overpayments) will apply in relation to penalties recoverable under section 115B. This will enable the penalty to be recovered as if it were an amount payable under a court order.

169.     Subsection (5) fixes the amount of the penalty. Subsection (5)(a) provides for a penalty of £1,000 for conduct which falls into subsection (2)(a) but not subsection (2)(b). For conduct falling within subsection (2)(b) subsection (5)(b) and (c) provide for a penalty of £1,000 multiplied by the number of employees involved in the fraud up to a maximum of £5,000.

170.     Subsection (6) gives the 'responsible person' the right to withdraw agreement to pay a penalty, in a manner specified by the Secretary of State, within 28 days of having accepted it.

171.     Subsection (7) (a) provides for the repayment of any amount of the penalty that has already been paid where the agreement to pay is withdrawn. In such circumstances subsection (7) (b) provides that the bar on prosecution will no longer apply.

172. Subsection (8) defines the different circumstances in which an individual is a 'relevant employee' in relation to conduct of the 'responsible person'. Subsection (8) provides that an individual is a relevant employee where:

(a) the conduct described in subsection (2) occurred when the individual was an employee of the 'responsible person'; or

(b) where the conduct described in subsection (2) occurred when the individual was an employee of a body corporate of which the 'responsible person' was a director; or

(c) the 'responsible person' engages in conduct described in subsection (2) whilst claiming to act on behalf of or in the interests of (because of his connection with) any person by whom the individual is employed.

173.     Subsection (9) defines terms used in this section.

174.     Subsection (9)(2) makes provision for penalties under section 115B to be paid into the Consolidated Fund.

Clause 16

Offence of failing to notify a change of circumstances

Background

     175.     This Clause amends sections 111A and 112 (1A) of the Social Security Administration Act 1992 (both of which were inserted by the Social Security Administration (Fraud) Act 1997). Before the 1997 Act the only specific offence for social security fraud was a summary offence of obtaining benefit by making a false statement or producing a false document (section 112). The 1997 Act created a new either way offence (section 111A) of dishonestly (or, in Scotland, knowingly) making a false statement or producing a false document with a view to obtaining benefit.

176.     In addition, the 1997 Act introduced new offences aimed primarily at beneficiaries who receive payment of benefit by automated credit transfer (ACT). Those paid by girocheque or order book sign a statement, whenever they obtain payment, to the effect that the circumstances remain unchanged. If it subsequently transpires that the circumstances have indeed changed without being notified to the DSS or an authority administering Housing Benefit or Council Tax Benefit, the person could be charged under the false statement provisions of section 111A or section 112. Those paid by ACT cannot be charged under these provisions because there is no false statement as such - payment is made directly into an individual's bank account without any signature or other action being required on their part. A similar difficulty arose in cases where the period of fraudulent activity extended over many years. In such cases the evidence afforded by signatures on order book and girocheque counterfoils was commonly no longer available. Previously the DSS had had to rely on specimen false statements spanning the period in question, which could give the court a misleading picture of the gravity of the offence.

177.     The 1997 Act sought to remedy this situation by adding offences of omission to the existing offences of commission. The new approach was to make it an offence in section 111A to fail to notify a change of circumstances which regulations under the Social Security Administration Act 1992 required the person to notify. The same form of wording was also used in defining the summary offence in section 112(1A). Unfortunately, problems were identified with this approach. It proved an impossible task to draft regulations which set out the various changes in circumstances which would inevitably affect any individual's entitlement to any given benefit. This Act provides the first opportunity to revisit the primary powers in order to secure the original policy intention.

178.     The proposed changes restructure the provision so that the offences are defined in terms of changes that a person knows will affect entitlement to benefit, rather than to changes that regulations require him to report. As increasing numbers of beneficiaries opt to receive payment of social security benefits through ACT, the need for this change has become greater.

 
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Prepared: 13 March 2001