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Social Security Fraud Bill [H.L.]


 

These notes refer to the Social Security Fraud Bill [H.L.]
as introduced in the House of Lords on 18th December 2000 [HL Bill 10]

Social Security Fraud Bill [H.L.]


EXPLANATORY NOTES

INTRODUCTION

These explanatory notes relate to the Social Security Fraud Bill [H.L.] as introduced in the House of Lords on 18th December 2000. They have been prepared by the Department of Social Security (DSS) in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.

The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require explanation or comment, none is given.

Structure of the notes

The notes start with a brief overview of the Bill as a whole and outline the four main elements contained within the Bill. The notes are then divided into four parts which reflect the elements of the Bill, and which provide the background to the changes. Each part then finishes with a detailed commentary on the clauses relevant to that part.

Financial effects

Figures are expressed in 1999/2000 price terms.

OVERVIEW

Background to the Bill

1.     The Government estimates that fraud in social security benefits costs the taxpayer at least £2 billion every year. In March 1999, the Government set out its strategy for reducing fraud and error in the social security system in the Green Paper entitled "A new contract for welfare - Safeguarding Social Security"(Cm 4276).

2.     The central principle in the Green Paper was "getting it right, keeping it right and putting it right". The intention is to secure the social security system by limiting the possibility of invalid claims entering it as new claims, ensuring that claims are adjusted when relevant changes of circumstances do occur and detecting those claims already within the system where benefit is being overpaid due to fraud or error.

3.     The Government has made a public commitment through the DSS Public Service Agreement to reduce fraud and error in Income Support and Jobseeker's Allowance by 25% by March 2004 and 50% by March 2006. The expectation is that by March 2002 at least a 10% reduction will have been achieved.

4.     The most recently published research on Income Support and Jobseeker's Allowance, where levels of fraud and error are measured continuously, estimated losses through fraud and error for the period April 1999 - March 2000 to be in the region of £1.32 billion (8.4% of programme expenditure).

5.     In November 1999, Lord Grabiner QC was asked by the Chancellor of the Exchequer to conduct an investigation into the informal economy and produce a report in time for the March 2000 Budget. He was assisted by a taskforce of officials drawn from HM Treasury, the Inland Revenue, Customs and Excise, DSS and the Department for Education and Employment.

6.     The final report entitled, "The Informal Economy" (copies available from the Public Enquiry Unit, HM Treasury, Parliament Street, London SW1P 3AG), suggested that every year billions of pounds were being lost to the informal economy. It proposed new measures to tackle the hidden economy and concluded that the Government should introduce new ways to tackle those operating in it. Lord Grabiner estimated that at any one time 120,000 people are fraudulently working and claiming benefits. This fraud costs the taxpayer half a billion pounds every year.

7.     In July 2000, the Government published a consultation document "Safeguarding Social Security: Getting the information we need" (copies available from Welfare Reform (Fraud) Freepost (HA 4441) Hayes UB3 1BR), in response to one of Lord Grabiner's recommendations that the Government should examine how to make use of information held by the private sector.

8.     This Bill seeks to implement the Government's proposals in response to Lord Grabiner's recommendations on tackling benefit fraud.

The measures in the Bill

9.     There are four main elements in the Bill:

Obtaining and Sharing Information

     Introduction of additional powers to obtain information from specified private and public sector organisations to tackle benefit fraud and error;

     A measure which provides the authority for DSS to supply information to countries outside of the UK in line with agreed arrangements, where those countries have adequate safeguards against improper use of that information;

     Changing the requirement on authorities administering Housing Benefit or Council Tax Benefit to supply information to DSS, the Northern Ireland Department or other authorities from one based in regulations to one based on directions.

Loss of Benefit Provisions

     Introduction of powers to reduce or withdraw specified benefits where an offender is convicted twice of benefit offences within a period of three years.

Penalties as an Alternative to Prosecution

     Introduction of a new discretionary power which will allow DSS and authorities administering Housing Benefit or Council Tax Benefit to offer a financial administrative penalty to an employer as an alternative to prosecution;

     Introduction of powers to facilitate closer working between DSS and authorities administering Housing Benefit or Council Tax Benefit in the operation of the administrative penalty system.

Offences

     Clarification of the offence of failing to notify a change of circumstances;

  • Alignment of the limit for taking proceedings in Scotland with that applying in England and Wales.

INFORMATION SHARING

Obtaining information

Background

The current position.

10.     Benefit fraud occurs because people lie about their circumstances, or deliberately fail to tell DSS or authorities administering Housing Benefit or Council Tax Benefit about a relevant change. Cross-checking the information that claimants provide against independent sources of information helps to detect benefit fraud.

11.     DSS already has powers to check information against that held by other Government Departments - for example, the Inland Revenue - to detect fraud committed by people working whilst claiming means-tested benefits. DSS also has powers to obtain information from employers. However, if a person is working and claiming benefit, he may wish to conceal his earnings from the Inland Revenue as well as DSS, or his employer may be colluding in his benefit fraud. Hence, the Bill provides powers to cross-check information with additional independent sources - for example, with banks.

12.     Information can be obtained from independent sources with a claimant's consent but people who lie to obtain benefit are unlikely to give this. Where benefit fraud is suspected, investigating officers can also ask organisations to provide them with any information for the purpose of the prevention and detection of crime under an exemption to data protection legislation set out in section 29 of the Data Protection Act 1998. However, they cannot compel organisations to provide information under the exemption. Many organisations are bound by a duty of confidentiality to their customers and are therefore uncertain whether they should provide information on this basis. Consequently, investigating officers obtain very little information in this way.

Recent developments

13.      DSS distributed over 800 copies of the consultation document "Safeguarding Social Security: Getting the information we need" in July 2000 to major utility companies, authorities administering Housing Benefit or Council Tax Benefit, major trade associations, the insurance and banking sectors, claimants' and civil liberties groups, the Data Protection Commissioner and other potentially interested parties including members of the public. The document was also available on the DSS website. DSS received 65 responses to the consultation document. A summary of responses was placed in the libraries of both Houses of Parliament.

The measures in the Bill

14.     The measures in the Bill amend and build upon current legislation in sections 109B and 110A of the Social Security Administration Act 1992 as inserted by the Child Support, Pensions and Social Security Act 2000. Section 109B provides for officers authorised under sections 109A and 110A to obtain information in relation to employment and pensions.

Clause 1: Additional powers to obtain information

15.     The measures in the Bill will provide for officers authorised under sections 109A and 110A of the Social Security Administration Act 1992 to require information about individuals from specified private and public sector organisations. Information may be obtained where it is reasonable for the purposes set out at section 109A(2) and 110A(2), and where it is legitimate to make an enquiry about the person concerned. The list of specified private and public sector organisations that can be required to provide information can be extended by an order with the affirmative resolution of both Houses of Parliament and amended by an order with a negative resolution.

16.     The measures also provide for specifically authorised officers to require general information from utility companies about the quantity of services supplied to residential properties. DSS intends to match this information electronically with benefit records in order to detect fraud. For example, if a person was claiming Income Support at a particular address and was consuming no electricity at that address this could indicate that he does not, in fact, live there and that his claim may be fraudulent. The measures do not provide for the bulk acquisition of individuals' names, only details of utilities supplied to residential addresses.

17.     If those from whom information has been requested fail to comply with authorised officers' requests they can be prosecuted under the current section 111 of the Social Security Administration Act 1992. They may be fined up to £1,000 plus £40 for each day after this that they continue to fail to provide the information requested.

Clause 2: Electronic access to information

18.     This clause provides that the Secretary of State and authorities administering Housing Benefit or Council Tax Benefit can require organisations to enter into arrangements so that the information can be provided electronically on-line where facilities exist to provide such access. For example, credit reference agencies provide direct on-line access to their databases instead of processing enquiries in writing. The clause provides that only those officers especially authorised can use such on-line facilities. This clause enables the Secretary of State and authorities administering Housing Benefit or Council Tax Benefit to require the provision of audit trail information in the arrangements in order to ensure that officers' use of the system can be thoroughly monitored. Authorities administering Housing Benefit or Council Tax Benefit are prevented from requiring an organisation to provide on-line facilities without the consent of the Secretary of State. They are also prevented from entering into a voluntary arrangement for on-line access to private information without the Secretary of State's consent.

Clause 3: Arrangements for payments in respect of information

19.      The measures allow the Secretary of State to make payments for the information obtained from credit reference agencies. This is because credit reference agencies exist specifically to sell their information. The Secretary of State may also make payments to telecommunications providers in cases where they will be asked to perform a unique processing service. This ensures that the Bill is in line with arrangements that telecommunications providers already have with other Government Departments and the police. Payments may also be made to utility companies for the bulk information they provide, as they are the only organisations that would be required to provide bulk information. The Secretary of State may make payments where he considers this reasonable, and need not make any payments if he does not think that this is appropriate. Any organisation that is added to the list of those who can be required to provide information may also be paid under the same terms.

COMMENTARY ON CLAUSES 1 TO 3

Clause 1: Additional powers to obtain information

20.     This clause amends and adds to the investigator's powers in sections 109A, 109B, 109C and 110A of the Social Security Administration Act 1992.

21.     Section 109A provides for the Secretary of State to authorise officers to use powers in sections 109B and 109C for the purposes set out at section 109A(2):

         (a) ascertaining whether a social security benefit is or was payable in an individual case;

         (b) investigating the circumstances of accidents, injuries or diseases giving rise to claims for Industrial Injuries Benefit and other benefits;

         (c) ascertaining whether the provisions of the relevant social security legislation have been, are being or are likely to be contravened (in cases involving particular individuals as well as more generally);

         (d) preventing, detecting and securing evidence of the commission of criminal offences in relation to the relevant social security legislation (either by particular individuals or more generally).

22.     Section 110A allows the Chief Executives or Principal Finance Officers of authorities administering Housing Benefit or Council Tax Benefit to authorise officers to use the powers at sections 109B and 109C for purposes set out in section 110A(2):

         (a) ascertaining whether Housing Benefit or Council Tax Benefit is or was payable in an individual case;

         (b) ascertaining whether the provisions of the relevant social security legislation regarding Housing Benefit and Council Tax Benefit have been, are being or are likely to be contravened (in cases involving particular individuals as well as more generally);

         (c) preventing, detecting and securing evidence of the commission of criminal offences in relation to Housing Benefit and Council Tax Benefit (either by particular individuals or more generally).

23.     Section 109B provides a power for authorised officers to require those listed at 109B(2) to provide information requested by written notice where this is reasonable in relation to one or more of the purposes set out at section 109A(2).

24.     Section 109C provides a power for authorised officers to inspect premises where persons are employed, from which a trade, business or pension fund is being carried on or where information about these is stored, where this is reasonable in relation to one or more of the purposes set out at section 109A(2). This section is unaffected by the Bill.

25.     Clause 1(1) provides for amendment of section 109B of the Social Security Administration Act 1992.

26.      Clause 1(2) inserts a new subsection (2A) after section 109B(2). It lists organisations from which officers authorised under section 109A and 110A of the Social Security Administration Act 1992 can require information. Those organisations include: banks; credit reference agencies; utility providers and education bodies.

27.     Clause 1(2) also inserts new subsections (2B) to (2E) into section 109B of the Social Security Administration Act 1992.

28.      The new section 109B(2B) provides that, subject to new section 109B(2D), the powers to require information at section 109B shall not be exercisable when making enquiries of persons listed at new section 109B(2B) unless:

    (a) the information required relates to a particular person; and,

    (b) it appears to the authorised officer that it is legitimate for him to make that person the subject of an enquiry.

29.      New section 109B(2C) provides that it is legitimate to make a person the subject of an enquiry where there are reasonable grounds for believing that person:

    (a) has contravened, might be contravening, or is likely to contravene, provisions of the relevant social security legislation as defined in section 121DA(1) of the Social Security Administration Act 1992;

    (b) has committed, might be committing, or is likely to commit, a benefit offence (see clause 1(5) for the definition of a benefit offence);

    (c) belongs to a set of persons who are more likely than others to fall within (a) or (b) above;

    (d) is a family member of a person falling within (a) or (b) or (c) above. (A family member is defined in section 137 of the Social Security and Contributions Benefit Act 1992 and includes married and unmarried partners and children and dependants which claimants or their partners are responsible for).

30.      New section 109B(2D) provides that, where an authorised officer is a member of a Government Department and where his authorisation explicitly states that it applies for the purposes of new section 109B(2D), nothing in 109B(2B) shall prevent him from obtaining information relating exclusively to whether, and in what quantities, water, gas and electricity are supplied to residential premises.

31.     New section 109B(2E) provides that the powers at 109B may not be exercised to obtain traffic data, as defined in section 21 of the Regulation of Investigatory Powers Act 2000, from telecommunications providers. That Act defines traffic data in relation to a communication as:

    (a) any data identifying, or purporting to identify, any person, apparatus or location to or from which the communication is or may be transmitted;

    (b) any data identifying or selecting, or purporting to identify or select, apparatus through which, or by means of which, the communication is or may be transmitted;

    (c) any data comprising signals for the actuation of apparatus used for the purposes of a telecommunication system for effecting (in whole or in part) the transmission of any communication; and

    (d) any data identifying the data or other data as data comprised in or attached to a particular communication.

This includes the content of the communication and information about the mode of the communication, who sent or received it and where it was made from or received.

32.     Clause 1(3) provides for new sections 109B(6) and (7).

33.     New section 109B(6) provides that provision may be made by Order:

    (a) to add to the list of persons at 109B(2A);

    (b) to remove persons from that list;

    (c) to modify 109B(2A) to take account of any changes to the names of persons listed there.

34.     New section 109B(7) gives definitions of the terms "bank" "credit" and "residential premises".

35.      Clause 1(4) inserts a new paragraph (c) into section 110A(8). Section 110A(8) provides that the powers in sections 109B and 109C may be exercised by officers authorised by authorities administering Housing Benefit and Council Tax Benefit. New paragraph (c) excludes section 109B(2D) from this provision.

36. Clause 1(5) amends section 111(1)(a) of the Act (offence of obstruction) by substituting "authorised officer" for "inspector" for the purposes of consistent terminology.

37.     Clause 1(6) amends section 121 DA (5) to re-define benefit offences. The new definition now incorporates attempt, conspiracy and collusion to commit benefit offences.

38.     Clause 1(7) amends section 121 DA (7) to define "relevant social security benefit" which is a term used in the re-definition of benefit offences above.

39.      Clause 1(8) adds the order making power provided for by new section 109B(6)(a) to the list of the order making powers subject to affirmative Parliamentary procedure set out at section 190(1)(a) of the Social Security Administration Act 1992.

Clause 2: Electronic access to information

40.     Clause 2(1) provides that new section 109BA shall be inserted into the Social Security Administration Act 1992 after section 109B.

41.     New section 109BA(1) provides that, subject to subsection (2), where it appears to the Secretary of State that: any person listed in section 109B(2A) keeps any electronic records; that those records may contain information relevant to any one or more of the purposes at 109A(2); and that electronic access to those records is, or is capable of being, provided; the Secretary of State may require that person to enter into arrangements under which authorised officers are allowed access to those records.

42.      New section 109BA(2)(a) provides that an authorised officer may only obtain information under the arrangements at 109BA(1) if his authorisation explicitly states that it applies for the purposes of that subsection.

43.      New subsection 109BA(2)(b) provides that officers authorised for the purposes of this subsection may only obtain information under the arrangements provided for by subsection (1) where the information relates to a particular person and where it is information that they have the power to obtain under provisions at section 109B.

44.      New section 109BA(3) sets out the matters which may be included in arrangements made under subsection (1).

45.      New section 109BA(4) provides that an authorised officer who is allowed access to electronic records in accordance with any arrangements entered into under subsection (1) may make copies of, and take extracts from, those records.

46.      Clause 2(2) provides for the insertion of new section 110AA after section 110A of the Social Security Administration Act 1992. The provisions are similar to clause 1 and enable authorities administering Housing Benefit or Council Tax Benefit, that have the Secretary of State's consent, to make arrangements for electronic access to information in relation to Housing Benefit or Council Tax Benefit claims.

47.      New section 110AA(1) provides that, subject to subsection (2), where it appears to an authority administering Housing Benefit or Council Tax Benefit that: any person listed in section 109B(2A) keeps any electronic records; that those records may contain information relevant to any one or more of the purposes at 110A(2); and that electronic access to those records is, or is capable of being, provided; the authority may require that person to enter into arrangements under which authorised officers are allowed access to those records.

48.      New section 110AA(2)(a) provides that an authorised officer may only obtain information under the arrangements at subsection (1) if his authorisation explicitly states that it applies for the purposes of that subsection.

49.      New subsection 110AA(2)(b) provides that the authorised officer may not obtain information under the arrangements at subsection (1) unless the information relates to a particular person and it is information that he has the power to obtain under provisions at section 109B as applied to him by provisions at section 110A(8).

50.      New section 110AA(3) provides for the matters which may be included in arrangements made under subsection (1).

51. New section 110AA(4) provides that an authorised officer who is able to access records in accordance with arrangements under subsection (1) may make copies of, and take extracts from, those records.

52.      New section 110AA(5) provides that an authority administering Housing Benefit or Council Tax Benefit may only require a person to enter into arrangements for giving authorised officers electronic access to records if it has the consent of the Secretary of State. It also provides that the authority may not enter into arrangements with a person specified in section 109B(2A) to give persons acting on behalf the authority electronic access to private information (otherwise than in accordance with the requirement imposed under this section) unless it has the consent of the Secretary of State. In either case, the arrangements entered into may be subject to any conditions imposed by the Secretary of State when he gives consent. "Private information" is defined in section 110AA(7) as any information held by a person who is not entitled to disclose it except in compliance with a requirement imposed by the authority in exercise of its statutory powers.

53.      New section 110AA(6) provides that, for the purposes of subsection (5), consent may be given in relation to a particular case, or to any case that falls within a particular description of cases.

54.      Clause 2(3) amends section 111 of the Social Security Administration Act 1992. Section 111(1) provides for any person found guilty of obstruction or delay to be liable on summary conviction to a fine not exceeding level 3 on the standard scale. That is currently up to a £1,000 fine. Section 111(2) provides that, where a person who is convicted under section 111(1) continues to refuse to provide required information or to answer questions, he will be guilty of a further offence. On summary conviction he will be fined £40 for every day thereafter that the requirement to provide information is not met.

    (a) Clause 2(3)(a) amends section 111(1) to provide that the offence at section 111 also applies where a person refuses or neglects to comply with any requirements under sections 109BA and 110AA.

    (b) Clause 2(3)(b) provides that the provisions at 111(2) apply to requirements under sections 109BA and 110AA.

Clause 3: Arrangements for payments in respect of information

55.      Clause 3(1) provides that it shall be the duty of the Secretary of State to ensure that such arrangements as he considers appropriate (if any) are in place to ensure that he can authorise such payments as he thinks appropriate and in cases that he thinks fit, in respect of organisations subject to "relevant obligations". The organisations that may be paid under these arrangements are credit reference agencies, telecommunications, gas, water and electricity providers and the servants and agents of the above. Payments may also be made to persons added to the list at section 109B(2A) by Order as provided for in clause 1(3) and their servants and agents.

56.      Clause 3(2) defines "relevant obligation" for the purposes of subsection (1).

    (a) Clause 3(2)(a) provides that, in the case of credit reference agencies, telecommunication providers and persons added to the list at 109B(2A) by Order, "relevant obligation" means any requirement to provide information under section 109B by virtue of their falling within the list at 109B(2A). It also means any requirement to provide access to records in accordance with section 109BA or 110AA.

    (b) Clause 3(2)(b) provides that, in the case of providers of water, gas and electricity, "relevant obligation" means any requirements imposed by the exercise of powers at 109B as mentioned in section 109B(2D).

57.      Clause 3(3) provides that the Secretary of State may make arrangements for payments to be made from money provided by Parliament in order to comply with his duties under this section.

58.      Clause 3(4) provides that authorities administering Housing Benefit or Council Tax Benefit shall be under a duty to comply with any specific or general directions that the Secretary of State makes regarding payments in accordance with arrangements made under clause 3(1).

 
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