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Lord Morris of Manchester: My Lords, can my noble friend say a brief word about the heavy emphasis on fraud in today's reporting of the National Audit Office's report, more especially in view of her most helpful statement to me on Tuesday (Hansard, col. 936) when she said that in the tens of thousands of cases of disabled people so far dealt with in the benefits integrity project, not one case of confirmed fraud has been discovered?

Baroness Hollis of Heigham: My Lords, I am happy to take my noble friend's intervention. Indeed, I stand by everything that I said in that Hansard report. The report of the National Audit Office, which is published annually, is based on old information from the benefit project inaugurated by the previous government, who produced those figures of 12 per cent. suspected or confirmed cases of fraud and up to 20 per cent. error. I repeat what I said to my noble friend on Tuesday; namely, that in the benefit integrity project, which does not deal with the 1,200 cases from the previous administration's project, we have, so far, in the 35 per cent. of cases that we have examined, not found a single case of confirmed fraud.

I was talking about the problem of correcting error when my noble friend asked me to confirm that, when we are talking about disability benefits, we are talking about error and not fraud. We want decisions on customers' claims to be provided quickly, correctly and in a way that is easy to understand. The Bill before the House will reduce the number of different types of decision-maker from six to just one. All decisions will be made on behalf of the Secretary of State. Those decisions can be processed automatically and that will

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lead to quicker receipt of the accurate amount of benefit, while allowing staff to make decisions which require the exercise of judgment.

Perhaps I may give the House an example. A claim for benefit, such as income support for a single person, can be decided and awarded quickly by a computer "reading" the factual information shown on the claim form. However, if, for example, there is a question as to whether that person is living with someone in a husband-and-wife relationship, staff would first need to use their judgment to make a decision on the living-together aspect before the person's entitlement to benefit can be considered. That will also allow staff to take an early second look at disputed decisions and, if appropriate, revise them there and then without affecting the customers' right to appeal to an independent tribunal if they are still not satisfied.

One particular area where decision-making is unnecessarily complex at the moment is the determination of applications for budgeting loans from the Social Fund. The current system is confusing for customers, and time-consuming for staff. For example, let us take the situation where a claimant--I shall call her Miss A--wants £150 to purchase a range of clothing items for her four children for the winter, and wishes to apply to the Social Fund for a budgeting loan for that amount; in other words, she wants to apply for a budgeting loan not a grant. She has to complete a 20-page application form, answering questions which may have nothing to do with her application and which require precise details about each item needed, probably down to the last pair of socks. This is because the application form is designed to cover both loans and grants, each of which have different requirements for award and Miss A has to provide enough information for a discretionary decision to be made on each item applied for.

When Miss A receives the decision on whether she is to be offered a budgeting loan, she will also receive notification that her application has been considered under the other parts of the discretionary system--such as a community care grant and crisis loan--even though she has not applied for either of them. That only serves to confuse her further.

The Bill will enable the current confusing system to be replaced with a modern fact-based approach, allowing staff to reach quicker decisions which are easier for customers to understand and enabling them to know where they stand. In line with our overall strategy of helping people move off benefits and into work, we will remove the exclusions from budgeting loans coverage, one of which is help with costs associated with trying to find and start work. I am sure that we shall extend in a decent way the budgeting loan procedures of the Social Fund.

So far I have been talking about decision-making, but perhaps I may now move on to appeals. The Bill will enable us to provide a streamlined and straightforward system for customers to appeal against decisions to an independent tribunal. At the moment the system is slow, complex and cumbersome. On average, appeals take up to six months to be resolved, by which time the person's

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circumstances may have totally changed. Many cases take a year, while others take two years or more. That is simply unacceptable. Moreover, 20,000 people appeal against a decision on their claim each year at a cost of £5 million when it is clear at the outset that they have no possibility of succeeding with what I would call a "meritless appeal", simply because the law does not permit it. They go right through the system only to be told that they never had a chance to begin with because the law was applied correctly to the facts of their case right at the start.

Perhaps I may give your Lordships some examples in that respect. A parent may appeal for a disability living allowance mobility grant for his or her three year-old child, only to find on appeal that no child under the age of five is eligible by law. Nevertheless, such a parent would have to go through to appeal. I was recently made aware of an appeal which was lodged following a decision to refuse a claim for invalid care allowance (ICA). The application form showed that disability living allowance, which goes to a disabled person, was in payment but only at the lower rate of care. The law is clear that you receive ICA only if a disabled person has middle or higher rates of DLA care. The claim was correctly refused. In confirming the adjudicating officer's decision, the tribunal stated that,

    "(the claim) to ICA cannot succeed because he does not meet the required criteria".

Such claims are "meritless appeals" simply because they cannot be successful given the law on fact. They are time-consuming, frustrating for customers and a waste of taxpayers' money.

There is currently no independent right of appeal on national insurance decisions, except to the High Court on a point of law. We want people to have access to a quick and straightforward process for appealing disputed decisions. The Bill will rationalise and clarify the appeals procedure and significantly reduce waiting time. It will replace the five separate tribunal jurisdictions that we have at the moment--namely, social security, child support, medical appeal tribunals, disability appeal tribunals and vaccine damage tribunals--with a single unified tribunal.

I know that some noble Lords have concerns about tribunals, so perhaps I may spell it out a little further. The Bill will also remove the rigid requirement for all cases to be heard by three-person tribunals. Instead, it will tailor the constitution of the tribunal to the needs of the particular case. Indeed, I know that that point worries those who are concerned about appeal systems. An example of an appeal requiring a three-member tribunal would be one on either the care or mobility components of DLA. The tribunal would require legal and medical expertise, together with disability expertise.

Examples of a tribunal requiring two members would be in the case of appeals involving the all-work test in incapacity benefit or labour market conditions in jobseeker's allowance. In the first instance, legal and medical expertise would be required; in the second instance legal expertise and someone with a knowledge of the local employment conditions would be required. An example of a tribunal requiring only one member would be in appeals involving the amount of capital

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affecting a claim for either, say, family credit or a Social Fund-funeral payment. In both examples, a legal expert would be required because we are dealing with straightforward facts of the law.

The Bill will also allow tribunals to correct their own mistakes, thus cutting out the time wasted when cases go to commissioners unnecessarily. For the first time--and I am sure that noble Lords will welcome this--it will introduce a new right of appeal against decisions in respect of national insurance contributions. The proposals in the Bill will also enable those "meritless appeals", like my ICA example or a case where a parent is seeking mobility allowance for a child under five, to be dealt with quickly. A tribunal panel member will give an explanation of why the appeal should not go to a full hearing and the person concerned will have the opportunity to dispute, check and correct any of the facts involved--for example, the child concerned may not be three but five and therefore is entitled to the benefit. Not only will these processes streamline the current system but the Bill will strengthen the essential independence of the current system by separating out the administrative from the judicial functions.

The Secretary of State will assume personal responsibility--at any rate she will assume responsibility; personal responsibility might be pushing it--for the administration of appeals through a new DSS executive agency established for that purpose. Demanding targets will be set to speed up the time it takes for people to get their appeal dealt with and know the outcome. The targets will be published and the results reported on. The noble and learned Lord the Lord Chancellor, as head of the judiciary, will continue to appoint the president of tribunals. He will also make all appointments to the panel of persons from whom tribunal members will be selected. All of the measures I have just outlined will help us to rationalise our dealings with customers and produce a fairer system.

Secondly, we are also dealing with major unfairnesses in the national insurance system, which is based on rights and responsibilities. It provides people with rights to benefits. We in turn expect individuals and employers to meet their responsibility to make fair contributions. At the moment a minority of employers are deliberately shirking their responsibilities. This Bill will make them pay up. It will, for example, make them pay national insurance contributions on non-cash payments given to employees through "restrictive covenants" which have become an increasingly common method of avoidance. For example, a director of a well-known takeaway restaurant chain was paid a bonus of £10 million. He entered into a legally binding agreement not to compete against his employer. The bonus was paid to him in gilts. Because he was paid in gilts and because of the restrictive covenant the company avoided paying NICs of more than £1 million on the bonus.

This Bill will also replace the outdated criminal offence for non-compliance with cash fines and align it with an Inland Revenue system. It will provide for new and tougher criminal penalties for deliberate cases of evasion and fraud and it will allow the Contributions Agency the power to take distraint action to recover debts. We shall be charging national insurance

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contributions on the provision of non-cash vouchers by employers--I refer to the ASDA scandal--as payment to their employees, thus bringing national insurance into line with tax. That way we shall not jeopardise the right of lower paid employees to obtain their full benefit rights because they are being paid below the national insurance level but their pay is topped up by vouchers in kind. However, childcare vouchers will remain exempt. We are making it easier for employers to pay their fair share by this alignment. That is what we hope the Bill will do. We have already consulted employers on the principles of these national insurance changes and we intend to consult them further on the detail.

Thirdly, the Bill also provides for some changes that were announced in last year's July Budget, and a number of other minor changes. The first is the measure in Clause 70 on lone parents which has been the subject of debate today. I shall set out quickly what it will do. This clause enables us to make regulations to align the rate of child benefit that is received by lone parents for their eldest child with the rate that is currently paid to couples for their eldest child. A lone parent on family credit who is receiving the higher rate of child benefit will currently have more absolute net income than a couple family with the same number of children on the same wage. The Government's intention is to focus help on the specific problem that lone parents face, that is childcare, while equalising the support available through child benefit. It will apply only to lone parents making new claims. There will be no cash losers among existing lone parents. Those who are not currently claiming because they are on income support or jobseeker's allowance will be able to make a subsequent claim when they move into work. This measure in the Bill deals only with child benefit. Noble Lords will recall that the House has already debated the package of regulations which equalised the family premium in income related benefits.

The Bill also sets a common time limit for backdating benefit claims of one month. Good government means setting the right priorities within limited resources. Where savings need to be made we believe that our priority must be payment of benefit to meet current entitlement. Yes, we have restricted the time period for backdating claims to benefit, but hand in hand with this is our commitment to ensure that people are aware of their entitlements and to streamline the processes involved in making claims. We want an active system which helps people to make claims at the right time and not just belatedly to recover the position after the due date. We are already looking to see whether the process for claiming specific benefits such as child benefit and widow's benefits could be made more straightforward to encourage a higher take up. The Benefits Agency is currently consulting a large number of organisations on ways to improve the information available to claimants. That consultation involves some 80,000 outlets.

This is a sensible and realistic approach. However, we have made special cases exemptions which will be covered in regulations. The first type of exemption will include cases where entitlement to a benefit is dependent on the claimant's, or another person's, entitlement to another benefit; what we call passporting. It is obviously

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unreasonable for administrative delays in awarding one benefit to deprive a person of entitlement to another. That relates particularly to invalid care allowance.

The second group of exceptions to the backdating rule will be for income-related benefits where special reasons exist, for example, where the customer has difficulty communicating because he has learning difficulties, is deaf or blind or there is no one to make the claim on his behalf. The third group of exceptions concerns customers who are forced to delay claiming because of difficulties in administration such as benefit office closures or where their personal circumstances such as recent separation or bereavement make it difficult for them to claim immediately.

I apologise to the House for the length of time I have taken in discussing the Bill but it is an extremely complicated and technical one. When we came into government we inherited a system that we believe is unacceptable and unsustainable. Social security spending is set to break through the £100 billion barrier. That is £25 billion more than the total amount collected in income tax in any one year. Too much of that money is being spent on paying the bill for social division. We want to use public resources wisely by investing in opportunities for people to support themselves through work and to reduce the bills of economic and social failure and thus to invest more adequately in education and health. With your Lordships' help we believe that this Bill will allow us to create an active, secure and integrated system of welfare delivery. I commend the Bill to the House.

Moved, That the Bill be now read a second time.--(Baroness Hollis of Heigham.)

4.7 p.m.

Lord Higgins: My Lords, I was somewhat surprised that the noble Baroness in introducing the Bill did not point out that a number of its proposals were put forward by the previous government. That is rather a strange omission. Therefore we not only welcome the Bill but we shall take credit for a number of the improvements in the procedural side of social security to which the noble Baroness has rightly drawn attention. In the light of that, we do not propose to vote against the Bill as such.

Nonetheless one feature of it is certainly not something that the previous government put forward; namely, the restriction on the backdating of social security payments. We regard the restriction now proposed as excessively draconian--not least the period of one month--for someone recently bereaved who wishes to make a claim or for someone who has been involved in a serious road accident. We shall wish to pursue that as we shall a number of other important amendments which it is right that your Lordships should act upon, given our role as a revising Chamber.

The most controversial clause in the Bill is, of course, Clause 70 which eliminates the child benefit premium for lone parents. That was proposed by the previous government and was fiercely attacked by the then Opposition. Indeed, the present Prime Minister, when

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interviewed on radio, and the present Secretary of State for Social Security, when interviewed for a newspaper article, said in categoric terms said they would not eliminate the child benefit premium for lone parents which the previous Government were proposing to do. Today the noble Baroness puts forward precisely the measure which she attacked in the most forthright terms when in opposition. I shall return to that point later.

The reality is that the Bill comes before your Lordships' House after a Third Reading in another place which resulted in a rebellion by the Government's Back-Benchers on a scale which, had there been a government with any normal majority, would have totally wiped them out. The reason for that rebellion is not surprising. Many of those in another place who had fought the election on the basis that they were not going to eliminate the provisions for lone parents felt that they had been misled, that they had misled the electorate, and that their own Government were now letting them down. It is a most remarkable U-turn to which I wish to return in my later remarks. Considerable electoral benefit was clearly gained from the attacks launched on the previous government. Now the present Government are reneging on what they then said.

The noble Baroness dealt with the first part of the Bill in great detail. I shall be brief because my noble friend Lady Anelay of St. Johns, who is to speak later, is, like many in your Lordships' House, a great expert on these issues. I have no more than 30 years' experience dealing with the issue from the front end. My noble friend has served on tribunals and knows what it is like at first hand. Therefore I am sure that the House will value her comments.

We have severe reservations about how impartial the appeals procedure may now be, with the Secretary of State and her officials taking the decisions rather than the existing independent panel. Secondly, we are concerned about the possible lack of anyone with legal qualifications when many of the issues involved are of an extremely complex legal nature. We are also worried that some of the decisions, determinations and assessments may be issued by computers, which also have no legal qualifications and may well get out of hand. It is right that we should press these matters in Committee.

There is a topical issue that we should raise. It relates to whether there is a right for an individual to appeal against the composition of the panel and whether the lack of that right to appeal is contrary to the European Convention on Human Rights. The same point has been raised in representations with regard to Clause 27. In another Bill we propose to incorporate the European convention into British law. It is suggested that there would then be a certificate of compatibility in effect if nothing in a Bill was in contravention of that new legislation. This Bill is going through at the same time as the Human Rights Bill. Perhaps I may ask the noble Baroness whether any provision in the Bill is incompatible with the Human Rights Bill. It would be foolish to pass provisions in this Bill which were contrary to the other Bill.

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The issue of backdating gives grave cause for concern. I think it is universally recognised among the various organisations outside this House which represent the disabled, the poor, and so on, that this is quite simply a Treasury cost-cutting exercise. No other justification has been put forward. If we consider the Bill carefully, and, as a revising Chamber, decide that one should give an opportunity for another place to consider it again, that is an issue which, while overclouded previously by the lone parent issue, should be reconsidered carefully.

The proposals on backdating are to be made by regulation. Far too much in the Bill is to be provided by regulation. The trouble with legislating by regulation is that when regulations appear one has no ability to discuss the issue and amend them. Therefore we shall need to consider carefully at Committee stage whether we should incorporate on to the face of the Bill--but with suitable provision for altering again by regulation at a later stage--the exemptions to the backdating provisions which the Minister in another place set out clearly but was not prepared to put on the face of the Bill. We should beware of passing legislation of this highly complex kind involving matters which are emotional and affect many of the poorest members of our society and leaving it to the Government to produce in unamended form a formula which we have not had a chance to discuss and amend in detail.

As regards backdating, the provisions are draconian. My noble friend Lord Blackwell is concerned about them in the context of housing benefit and rent allowances. We should consider carefully whether it is right that these backdating provisions should be as stringent as they are and whether it is appropriate for them to be imposed purely as a Treasury exercise.

Another problem has been raised. For want of better jargon I call it the "in-out" problem. I refer to the problem of the lone parent who at present receives the higher rate of benefit. He then goes into a job. If that job does not work out, he comes back on to benefit at the lower rate. Last weekend, the Sunday Telegraph had the remarkably paradoxical headline, "Welfare to Work hits job prospects". The article raised the point that I have just made; namely, that single parents will be on benefit at the higher rate, will go into a job which may not work out, and then find that they return to the lower rate of benefit.

The matter has been dealt with in two ways: in the Bill, and in the statutory instrument we discussed before Christmas. The noble Baroness was kind enough to clarify the position for me. As regards the Bill and child benefit, that is not a problem. I am told--no doubt the noble Baroness will be able to confirm it--that on that aspect there is not an "in-out" problem. If someone goes into work, and comes out of it, he will receive the higher rate of benefit. That is not true as regards the statutory instrument which we passed before Christmas. How on earth can the noble Baroness justify that? Surely the

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statutory instrument is totally incompatible with the situation where the Government are trying to get people on these benefits to take the risk of going into work.

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