Tax Credits Bill

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Mr. Clappison: I can make common ground with the Paymaster General to the extent that this has been an important debate on an important subject. I thank her for her considered response, but I remain far from satisfied with some of her answers. I am grateful to my hon. Friends for their well-informed comments, which echo those made by many others, and to the hon. Member for Northavon for his remarks about the amendment. I think that most members of the public would also welcome such a mechanism.

We have achieved a measure of consensus. We all want to see fraud tackled; that is in everyone's interests, claimants as well as members of the public. I quote from the Chancellor's response to Lord Grabiner's report, ''The Informal Economy'':

    ''Defrauding the benefits system means defrauding the poor and preventing us getting the resources to those in need. We would be failing in our obligation to those who need the benefits system if we allowed people to defraud it.''

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We can all agree with that. There is not necessarily a conflict between the interests of honest claimants and bearing down on fraud.

I concur with my hon. Friends about the complexity of the system. As my hon. Friend the Member for Arundel and South Downs said, there are several grey areas that need to be resolved. Fraud is fraud and it must be dealt with.

I take issue with the Paymaster General's remarks about prosecuting tax credit fraud and filling up the prisons with those who commit it. On the basis of the figures that we have been given, there is some way to go before that happens. The number has increased from three or four this morning to five this afternoon.

The Paymaster General said on Second Reading:

    ''The compliance regime for the new tax credits will be based on two principles: encouraging people to claim everything to which they are entitled, and providing an effective deterrent to the small minority—it is small—who try to cheat the system.''

Dawn Primarolo: I told the hon. Gentleman that it was small.

Mr. Clappison: That may be so, but given that 1.3 million people claim working families tax credit there may be many cases and a substantial loss of revenue to the Exchequer. If it is anything like the fraud that is prevalent in the rest of the benefits system, although it may be committed by a small minority of all those claiming it will still represent a substantial number who need to be dealt with. We must do everything possible to deter people from doing it.

In her Second Reading speech, the Paymaster General went on to draw attention to the powers and penalties that the Government have put in place. She said:

    ''The Bill contains provisions to deal with non-compliance, including inquiry and information powers to uncover false claims, financial penalties when tax credits are falsely claimed, and powers to investigate and prosecute cases of criminal fraud.''—[Official Report, 10 December 2001; Vol. 376, c. 604.]

I hope that she does not envisage the possibility that there is a category of non-criminal fraud. All fraud is a crime because it is dishonest, and the powers to prosecute it have not been used satisfactorily.

The Inland Revenue's prosecution policy sounds impressive when one goes through all the features that may be present in a certain case, including conspiracy, repeat offences and impersonation of Revenue officials. The Paymaster General mentioned the use of false or forged documents. How many cases of working families tax credit fraud would involve the use of false documents? An applicant who intends to commit fraud will first fill out an application form, which will be a false document if they have put down untrue statements about their circumstances. That may be true in a large number of cases. This is only guesswork, but I suggest that although the Paymaster General says that the provisions are designed to bring about prosecutions in the most serious cases—ones in which there is realistic prospect of conviction, which is the general test for prosecutions—it would be hard to credit the figure of 40 prosecutions during two years in a system that involves 1.3 million people, or the idea

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that every case that bears such features has been prosecuted.

3.30 pm

Mr. Hoban: My hon. Friend is making an important point, but I want to draw him back to the numbers in the written answer from the Paymaster General. There were 8,800 cases in which recoveries were made because of the overpayment of tax credits. I should think that many of those involved the offences that the hon. Lady mentioned, such as the impersonation of Inland Revenue officers or the provision of false or forged documentation. However, less than one quarter of 1 per cent. of such cases led to a prosecution. Surely, that indicates that prosecutions are not being pursued vigorously and the Government do not take the matter as seriously as they should.

Mr. Clappison: My hon. Friend is absolutely right. We are worried that insufficient numbers are being prosecuted. The Paymaster General says that we have a select system of prosecutions, but it must be extremely selective to generate such a small number. We find it hard to credit that a vigorous prosecution policy lies behind that. Fraud is a criminal matter and should be treated as a crime.

On the question of investigations that precede prosecutions, I hope that I can clear up the conflict between myself and the Paymaster General on the figure of 1.5 per cent. As I said, that figure came from the Inland Revenue's annual report, which is the only source of information that we have. It states:

    ''During our first full year, our aim was to open inquiries into 1.5 per cent. of applications. The process is supported by a risk-based scorecard, matching of data with other Government Departments and allegations from the public.''.

It goes on to set out the number of inquiries that have taken place:

    ''We found non-compliance in 28 per cent. of cases''.

From that report, I understood that the system of risk assessment, which the Paymaster General took us through at some length, had generated the figure of 1.5 per cent. She is shaking her head but given that that figure was in the report, can she tell us what proportion of cases were in fact investigated? We would be grateful to know the figure that was generated by the risk-based assessment, whether or not it was 1.5 per cent.

It is striking that the risk-based assessment led to a finding of non-compliance in 28 per cent. of cases. That is a high figure. The figure for cases of lower risk may be less than 28 per cent., but that could still generate a substantial figure across the tax credit framework. We need more information on how many claims, as a proportion of cases, have been investigated.

We should also like to know about penalties—the Paymaster General did not answer the point that was made by my hon. Friend the Member for Fareham. Given that there are so few prosecutions, and that the only other way in which cases are dealt with is by civil penalty, what proportion of penalties were imposed for fraud and what proportion related to negligence? We know that information systems have not been

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good in the past so the Government have hardly any record of how much has been generated by penalties. In a parliamentary answer, the hon. Lady said that it was £50 over two months, but the information-keeping system has not been good and we need better information.

We also need more information on the ballpark question of how much fraud is in the tax credit system. What is the Government assessment of the amount and extent of fraud? That remains unanswered thus far, so I will study the hon. Lady's remarks carefully. Can she tell me about the outcome of the benchmarking exercise and what will be made public? We do not want anything that would encourage or enable people to commit fraud to be made public, but the Department for Work and Pensions has given its assessment of fraud across the benefit system, and we cannot see how a simple assessment could generate more fraud. As the Government have said in the past in their Green Papers on fraud, it is essential to know how much fraud there is in a system before one sets out to tackle it. We believe that the Government's assessment of the amount of fraud in the tax credit system should be put in the public domain.

I made that the starting point of my opening remarks this morning. I reach my concluding point, and the question remains unanswered. I shall study carefully what the Paymaster General has said and reflect on it, but I am unsatisfied. Although I shall not press the amendment to a vote, it raises an important subject that I want to think about carefully. Having done so, I may well want to return to it on Report, but, for today, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 33 ordered to stand part of the Bill.

Clause 34

Powers in relation to documents

Mr. Clappison: I beg to move amendment No. 44, in page 22, line 8, leave out 'serious'.

We now come to a different subject—powers to investigate cases—and in view of the Paymaster General's comments in the previous debate, we hope that she will look on the amendment favourably.

Dawn Primarolo: No.

Mr. Clappison: I hope that the hon. Lady will at least listen to my remarks before she responds, because we are trying to help the Government to investigate fraud and remove the self-imposed restrictions on the authorities' ability to investigate fraud.

The clause gives the Inland Revenue power to obtain evidence in cases of suspected tax fraud and refers to powers already conferred on the board by sections of the Taxes Management Act 1970. The amendment is designed to help the Government and to look at the operation of those powers and the type of cases that they cover.

The clause appears to draw a distinction between the conditions necessary for the use of the power to

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require documents to be produced and the use of the power to enter, search and remove information from premises. There must be suspicion of tax credit fraud for the use of the power to require documents to be produced. However, suspicion of ''serious'' tax credit fraud is needed for the use of the power to enter, search and remove information from premises. The amendment relates to the word ''serious'' and the necessity for that hurdle to be surmounted before the power can be used.

The Paymaster General may say that entry on to premises is a more serious step than requiring documents to be produced, but I ask her to consider that all cases of tax credit fraud are serious enough to be dealt with by a sentence of imprisonment. We believe that to raise the threshold to ''serious'' will create many difficulties in practice for those who have to investigate this type of fraud, which as we have heard and as I believe the Paymaster General accepts, is open to collusion, involves complex considerations and many grey areas. It is therefore particularly important that the Inland Revenue has the power to enter, search and remove information from premises, if they are to carry out a thorough investigation of fraud and to prosecute in appropriate cases.

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