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Lord Mackay of Ardbrecknish: As the noble Baroness explained, this amendment would require the Secretary of State to identify a specific sum of money for local authorities' fraud prevention measures. The purpose is to encourage local authorities to do more to combat fraud. I am sure that we all support that and indeed, at the risk of embarrassing her, the noble Baroness may find that all three Members of the Committee who have taken part in this short debate are absolutely four-square on the prevention of fraud in the whole social security system and in the housing benefit system in particular, which we are discussing today. Indeed, there appears to be a considerable amount of that fraud and I shall return to that point later in my speech.

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But we do not believe that the amendment is the best way in which to proceed and to achieve further gains in the fight against fraud. As the noble Baroness knows, I never try to make anything of defective amendments but the amendment is defective. However, my case does not rest on that.

Local authorities have a statutory duty to protect public funds, including housing benefit. But we think that this amendment would tie the Secretary of State's hands in meeting authorities' efforts to combat fraud. The provision of a specific sum to meet the cost of measures to prevent fraud is contrary to our general approach, which is to pay subsidy according to the results achieve. The amendment would pay for anti-fraud work but we prefer to pay for the results of that work. Therefore, the amendment calls into question the method by which the benefit subsidy mechanism works which, as I say, rewards authorities by allowing them to share in the weekly benefit saving which they achieve.

The noble Baroness made some play on the point that we may be spending more on detecting fraud rather than on preventing it. I understand that point, but I hope that I shall be able to explain to her that her fears on that score are groundless. She postulated an authority which had taken such effective anti-fraud measures that in fact no fraud was attempted in that area. I do not think there is any evidence that any local authority is yet in that happy position.

Baroness Hollis of Heigham: I quoted the specific authority, Chiltern District Council, which gave evidence to the Select Committee which showed that it would struggle to meet half the target figure, at which point it would fall into areas of penalty, even though auditors had showered praise on the council, and the like, for its ability to stop fraud. It was being penalised for what it believed to have been a very effective strategy to prevent fraud rather than to detect it. Had the council not invested in preventing fraud, but instead let it occur and then detected it, it would perversely have been rewarded.

Lord Mackay of Ardbrecknish: I thought that that was what the noble Baroness was saying. I preface my remarks by saying I suppose one can either stop the fraud happening by detecting it when the claim comes in and before the claim is paid or one can detect it once the claim is in payment. The position is that both count as a form of reward to the local authority. If the claim has gone into the local authority and in the course of processing it is discovered to be fraudulent, even before it has come into payment, then the saving is, so to speak, chalked up and the local authority receives part of the benefit of the saving in reward, and of course we do, as central government, by not having to pay all that money out in benefit.

The noble Baroness is not quite right when she says that there is no reward to a local authority which runs the system and detects and stops the fraud before any money is paid out. As I understand it, that is allowed

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for in the situation in this country. Indeed, in the last financial year almost 90 per cent. of authorities earned additional subsidy for their anti-fraud efforts.

We accept that there is a role for special measures in the anti-productivity of local authorities. That is why the Secretary of State has focused his recent strategy on rewarding local authorities for their anti-fraud efforts. The recent government amendments to pay subsidy to one authority on behalf of a group of authorities provide the flexibility that we are trying to achieve. Indeed, the Committee accepted those amendments without any debate because we are all agreed on the objective, and the amendment passed earlier this afternoon builds on the measures that we have already introduced.

In 1993 my right honourable friend the Secretary of State introduced a financial incentive scheme for the detection of fraud. Savings have increased from £92 million in 1993-94 to £171 million in 1994-95. Figures for 1995-96 are expected to exceed £200 million. The scheme for 1996-97 has been stiffened still further, with greater rewards for high performing authorities and tougher penalties for those who are failing in their duty to protect public funds--a kind of carrot and stick approach.

The noble Earl asked what I always think is a pertinent question: how much fraud is there--how many people are smuggling things into the country, as I was asked the other day--and how many people are claiming benefits? The truth is that people are not putting up their hands and indicating that they are doing any of these things; otherwise they would be fairly easy to measure. The Government have taken their figures from a fairly detailed benefit review of fraud and the correctness of major social security benefits which we undertook between September and December 1994.

We had over 200 specially trained investigators and they took a random sample of customers: 3,000 unemployed, of which 1,000 were on income support only; 1,000 on income support and unemployment benefit; 1,000 on unemployment benefit only; 1,000 lone parents; 1,000 pensioners; 1,000 disabled, and others. The investigator undertook a full investigation of the clerical records and computer records that we hold. He carried out an unnotified visit to the customer's home, so if the house was not there or the tenant was not there it was as sure as night follows day that one kind of fraud was detected without any doubt. He verified the customer's identity and probed all the details held to verify income, savings and so on. It is from that very detailed investigation that we have arrived at the rough figure--and it can only be a rough figure--of £1 billion in housing benefit fraud.

The Select Committee in another place, on the basis of one person's evidence from one London borough and then a piece of extrapolation, thought it might be up to £2 billion. I have explained from where we got our £1 billion. It was not conjured up out of the air; we undertook a fairly detailed study in order to come to these conclusions. Whether it is £1 billion, as I suspect it is, or £2 billion, as the Select Committee suggested it is, one sure thing is that it is all wrong. As the noble

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Baroness said, it is either money that the taxpayer could be saved or money we could spend on the benefit system elsewhere.

We have undertaken several new fraud initiatives. Perhaps I could briefly spell them out to the Committee in suggesting that they are the best way to go and not the way suggested in the amendment by the noble Baroness: £1 million has been made available to fund and train specialised teams to crack down on organised housing benefit fraud across London. The fact of the matter is that this is a crime which is a good deal easier to commit in the anonymity of a big city--especially a city like London, which is extremely large--than it is in the country, in small towns and villages.

A housing benefit data matching service is to be set up next month to detect fraud and inconsistencies in claims. That is an important step forward. The noble Baroness mentioned that £8 million has been set aside via a challenge fund for innovative anti-fraud work. A study is taking place into the costs and benefits of a unified housing benefit computer system. The Department of Social Security and local authorities are working together to draw up a verification framework to prevent fraud getting into the system in the first place. Lastly, a rolling campaign of increased anti-fraud activities, headlined Spotlight on Benefit Fraud, has been operating at various locations across the country throughout the spring and summer.

That Spotlight on Benefit Fraud is undoubtedly bringing in considerable dividends, not just on housing benefit but across the whole benefit area as people report suspicious circumstances, circumstances in which they think someone is making fraudulent claims. They range all the way from, as the noble Baroness said, people forgetting that their circumstances have changed, or owning up to the fact that their circumstances have changed, to pretty major frauds such as the one the Committee may have read about in the papers yesterday and today of the lady who was using--it seems doubly indecent to be doing this--the birth certificates of dead children in order to perpetrate a major fraud on British taxpayers.

We are taking this matter very seriously indeed. A great deal of anti-fraud work is under way across the whole field and particularly with regard to housing benefit, but I do not believe that the amendment produced by the noble Baroness today would secure an increase in fraud activity. The methods we are using and the investigations we are undertaking are the right way to go about it. With that explanation of what we are doing, and total endorsement of the point made by the noble Baroness that we are out to crack down on people who think they can perpetrate this kind of fraud, I hope that she will be able to withdraw her amendment.

6.45 p.m.

Baroness Hollis of Heigham: I thank the Minister for that reply. As he made clear, it is certainly not a party issue and we welcome the Government's initiatives. Like him, I think the local authorities would be the first to admit that they too are not able precisely to estimate the scale of fraud.

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I would like to correct something the Minister said. He gave the impression that the figure of £2 billion that I was quoting, drawn from the report of the Social Security Select Committee, was based on one officer from one London borough. On the contrary, he was the head of a team operating across and speaking for all the London boroughs. Therefore, far from this being a single, one-off, eccentric figure which could not be multiplied or extrapolated from, it represented all London boroughs. The more we explore the matter, the more evidence comes to light from similar large cities--and the Minister was right to focus on that aspect--which suggests similar levels of deception. I believe that the Minister would be advised to take the figure of, perhaps, £2 billion reasonably seriously. All the evidence coming in suggests that the figure of £1 billion may be far too low.

My second point concerns the technicalities of financing. As part of their initiatives, the Government listed challenge funding of £8 million. That is silly. The Government have top sliced £5 million off the existing administration subsidy of local authorities and put it into a pot with only £3 million of new money to bid for. Therefore, it means that the general level of everyone's administrative subsidy has been depressed and a few lucky authorities which bid for it will get a little more. That is batty; it should actually be the other way around. This is not an area in which it makes sense to top slice off the general administrative subsidy for the, perhaps, less efficient authorities, and thereby discourage them from doing more work, while giving more money to the few that are in a position to bid and compete for it, which will tend to be the better organised authorities.

If we are to have challenge funding, it must be new money. It would be far more sensible to combine that with a strengthened administrative grant, separately identified as the Audit Commission recommended. I hope that the Government will look more thoroughly at the matter. Nonetheless, the general point remains: what the Government are currently doing--and I am not criticising this aspect--is to reward to a modest degree those local authorities which detect fraud in the process of paying out, or after payment has been made. I do not criticise that; indeed, I believe that to be both sensible and welcome.

However, in addition there must be a more positive incentive for local authorities to create an anti-fraud culture in the first place to prevent it occurring. All the evidence suggests that local authorities which have created that culture so that landlords never make fraudulent claims (because they know they are likely to be prosecuted and the like) may now struggle to reach their targets of detecting fraud because they have prevented it and, therefore, may find themselves penalised.

Nothing the Minister said in his response has answered that basic perversity--namely, that if an authority is successful enough at preventing fraud it is then penalised for not detecting it. I can assure the Minister that I am correct in that respect. I see that the Minister shakes his head. In that case, perhaps the noble Lord would like to write to me and explain to me exactly where I have misunderstood the system. Certainly my

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advice from the local authority associations which are at the sharp end of the spectrum believe that to be the case. Therefore, I hope that the Minister takes what we are saying very seriously. We all want to see fraud eradicated, but, while the Minister has done part of that by encouraging and rewarding local authorities for detecting fraud, he is not doing enough to prevent fraud occurring. Moreover, he will be actively penalising those authorities which fail to reach half their target figure. I see that the Minister wishes to respond.

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