Tax Credits Bill

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Clause 29

Incorrect statements etc.

Mr. Clappison: I beg to move amendment No. 24, in page 19, line 38, leave out ''fraudulently or''.

The Chairman: With this it will be convenient to take amendment No. 114, in page 20, line 14, leave out ''fraudulently or''.

New clause 10—Fraudulent incorrect statements—

    ''(1) If a person fraudulently—

    (a) makes an incorrect statement or declaration in or in connection with a claim for a tax credit or a notification of a change of circumstances given in accordance with regulations under section 6 or in response to a notice under section 17, or

    (b) gives incorrect information or evidence in response to a requirement imposed on him by virtue of section 14(2), 15(2), 16(3) or 18(2) or regulations under section 24 he shall be guilty of an offence.

    (2) A person guilty of an offence under subsection (1) above shall be liable on summary conviction to a fine not exceeding level 5 on the standard scale, or to imprisonment for a term not exceeding 6 months, or to both.''

Mr. Clappison: We now move from overpayments to the penalty regime, which is constructed between clauses 29 and 33. Clause 29 provides for penalties for persons who make incorrect statements in applications for tax credits. A person who fraudulently or negligently makes incorrect statements or declarations may be subject to a penalty of up to £3,000. In many respects, that mirrors provisions already in place in the Tax Credits Act 1999.

The purpose of the amendments and new clause 10 is to separate fraudulent statements from negligent statements and make fraudulent statements subject to a more serious regime. We had a short debate about negligence earlier. I do not think that there is an important difference between—

The Chairman: Order. I beg the Committee's pardon. I omitted to put the clause stand part question for clause 28.

Question proposed, That clause 28 stand part of the Bill.

Mr. Boateng: I wonder if I might take this opportunity to put a point on the record about interest on overpayments. It is of interest to those who observe our proceedings and to those who subsequently read the record. My comment has a direct bearing on the debate on clause 29, and I would

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have made it then, Mr. Beard, if you had not given me an opportunity to do so now.

It would be our intention to seek interest only if the overpayment arose because of fraud or neglect. The hon. Member for Northavon would have pressed the matter to a vote even if I had mentioned that earlier. I could see him working himself up to pushing for a vote. However, it is important that the record should be clear: people who receive overpayments in the circumstances that we described and receive notice of overpayment due after the 30-day period will not have to pay interest if they do not pay immediately or if they pay over a period of time.

Question put and agreed to.

Clause 28 ordered to stand part of the Bill.

Mr. Clappison: The image still in my mind is that of television. We have now had a demonstration of video equipment from the Minister, who has given a proficient demonstration of playback. I will not freeze frame but will endeavour to fast forward—back to the future—to clause 29, which is about fraud and negligence. We believe that fraudulent statements are more serious than negligent statements and should be dealt with accordingly; that is the purpose of new clause 10.

Amendment No. 69 probes the Bill's implications for negligent statements under the new tax credit arrangements. However, we wish to make fraudulent statements a criminal offence and ensure that they are dealt with as such under clause 29. In order to assist deliberation on the subject, we would like to know how many of the 478 penalties that were imposed for false working families tax credit applications since the system began in October 1999 were for fraudulent statements and how many were for negligent statements. We would like to have clear information about the operation of the penalty regime.

The Paymaster General recently told me in correspondence that the Inland Revenue was not recording information about how much was recovered through tax credit penalties. Until 26 October last year, penalties received as a result of tax credit investigation settlements and tax credit penalties were recorded as income tax. Only since 29 October last year have tax credit investigation settlements and tax credit penalties been recorded separately from income tax. The Paymaster General told me that, in the first two months of recording tax credit receipts separately—as penalties and settlements—the Inland Revenue collected £191,000 in settlements and £50 in penalties. We would like to have clearer information about that, and greater transparency in the system. We detest fraud, and no doubt that view is shared by all members of the Committee. As a criminal matter, fraud should be taken seriously, and we want to see it dealt with as a criminal offence.

6 pm

Mr. Boateng: Through the amendments, he hon. Member for Hertsmere wants to remove from clause 29 the reference to fraudulent behaviour. He would prefer that such behaviour were dealt with as a new

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criminal offence under his proposed new clause. I agree with the hon. Gentleman—as I am sure do all members of the Committee—that we want to ensure that the compliance framework for the new tax credit is effective against those who may attempt to abuse the system. Fraud is undoubtedly such an abuse and it is our objective to prevent it, while not deterring people who are genuine from claiming their entitlement.

I want to explain how we propose to take such action. In the light of our intentions, the hon. Gentleman's proposed new clause 10 is redundant. Nothing would be caught under it that would not already be caught under the new criminal offence introduced under clause 33. The Bill already makes clear provision to counter criminal abuse of the system, and the criminal offence that the hon. Gentleman wants to introduce would not add anything to that.

We are always open to suggestions about how the law may be made more effective and, as the hon. Gentleman knows from previous exchanges with me in Committee, we are open always to suggestions on how to improve the focus of criminal justice measures, particularly as they relate to fraud of the public purse. We do not believe that new clause 10 would achieve anything that is not already achieved under clause 33. If he has a contrary view, can he establish any defect or failing under clause 33? I am not sure whether it is his intention that civil penalties should not be available in cases of fraudulent behaviour. If so, amendment No. 24—and amendment No. 69, which we shall discuss when we reach the next group of amendments—would remove ''fraudulently'' and ''negligently'' from the clause. That would mean that we do not have a civil penalty either, but clearly that is not his intention.

Mr. Clappison: In the first part of my remarks, I said that amendment No. 69 was a probing amendment.

Mr. Boateng: I am grateful to the hon. Gentleman. Were that not the case, penalty provisions would be available whenever someone made an incorrect statement or provided inaccurate information, including cases of fraudulent behaviour. That would not be desirable. It would even make the penalty available where there was neither fraud nor neglect. It clearly would not be right to punish an innocent error in that way.

Perhaps we should look at cases where there has been an innocent error. The hon. Member for Northavon has expressed concerns about that in the past. The Government's policy for tax credits, as for tax matters more widely, is that civil penalties should be applied in most cases of fraud but that there should be criminal prosecutions in cases of serious or organised fraud. Governments of all political persuasions have adopted that approach. It is cost effective and experience tells us that prosecutions for minor frauds do not generally result in sentences likely to provide a realistic deterrent.

We want to ensure that we develop a legal framework that is effective, but proportionate in its response, and that gives us a compliance regime that is fit for the purpose. We think that we have got the

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balance right. I do not think that the improvements suggested by the hon. Member for Hertsmere would turn out to be improvements at all. They are either unnecessary or technically flawed. However, we accept the spirit that underlies them, which is to bear down hard on fraud and to make it clear that fraud is unacceptable and will result in a proportionate response.

Mr. Clappison: I am grateful for the spirit in which the Minister responded. I will endeavour to answer his main point, but there is another important point that I should make first. The amendment is designed to deal with fraud and is not intended to deter people from claiming the credits to which they are entitled, or to deal with people who receive an overpayment through no fault of their own or who, through their own failing or carelessness, but not dishonestly or fraudulently, receive too much working families tax credit. It is designed to get at people who deliberately set out to defraud the system by making deceitful representations. There is a big difference between those who form a dishonest intention to deceive the system and the honest person who perhaps loses out as a result of the dishonest activities of the fraudsters.

The Minister asked me why the provisions in clause 33 are not sufficient and why we want to have this additional new clause. Clause 33 could be improved. We would like to see a stiffer penalty. Even were that not the case, it is possible under the existing provisions of tax credit to prosecute people for false WFTC applications. That has been done. I would draw more confidence from the Minister's response if the prosecution policy had been more vigorous. So far, the number of prosecutions has been very low indeed. No one can reasonably say that the extent of fraud in tax credits is reflected by the number of prosecutions. It is more likely that fraud is going unprosecuted. Either it is not being detected or, when it is detected, it is being dealt with by penalties rather than prosecutions. The new clause would mean that if someone acted fraudulently or made a fraudulent statement, they would be prosecuted for a criminal offence.

I have listened carefully to the Minister's comments. I want to reflect on his points but, at the moment, I am not entirely satisfied by his response. Notwithstanding the generous spirit in which he put forward his response, we are concerned about the issue and may wish to return to it on Report. On that basis, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

 
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