House of Lords - Explanatory Note
Social Security Fraud Bill [H.L.] - continued          House of Lords

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Clause 10: Loss of benefit regulations

123.      This section contains provisions about the making of regulations by the Secretary of State.

124.      Subsection (1) defines the term 'prescribed' to mean prescribed by, or in accordance with, regulations made by the Secretary of State.

125.      Subsection (2) provides for all regulations under these provisions, other than those regulations referred to in subsection (3), to be made by the negative resolution procedure.

126.      Subsection (3) lists the regulations that require the affirmative resolution procedure. These are:

a) regulations that prescribe any additional benefits that are to be treated as disqualifying and/or sanctionable benefits for the purposes of clause 6;

b) regulations to prescribe a reduced amount of Income Support to be paid to a claimant, or a member of the offender's family, who is subject to a fraud sanction;

c) regulations prescribing the circumstances in which reduced hardship payments are to be made, and the amount, where the sanction applies to a single claimant on Jobseeker's Allowance, or where both members of a joint-claim couple are subject to a sanction. This subsection also applies to regulations prescribing a reduced amount of Housing Benefit or Council Tax Benefit to be paid to a claimant, or member of the offenders family, who is subject to a fraud sanction;

d) regulations prescribing a reduced amount of a joint-claim Jobseeker's Allowance where one member of a couple is subject to sanction.

127.      Subsection (4) applies provisions of the Social Security Administration Act 1992 allowing the regulation-making powers in clauses 6 to 9 to be used in such a way as to make different provisions for different classes of cases, imposing conditions or creating exceptions. It also enables the regulations to include incidental, consequential and transitional provisions.

128.     Subsection (5) provides that regulations under these measures can include different provision for different areas.

Clause 11: Consequential amendments

129.      Subsection (1) makes a consequential amendment to the 'breach of Community Order' provisions in the Child Support, Pensions and Social Security Act 2000 in relation to joint claims to Jobseeker's Allowance. It allows sanctions under this Bill to be taken into account when determining the sanction to which a joint-claim couple is subject under that Act.

130.      Subsection (2) creates a right of appeal against the decision that a benefit has to be reduced or withdrawn.

131.      Subsection (3) adds the Social Security Fraud Act 2001 to the definitions of "relevant enactments and relevant Northern Ireland enactments" in section 170 of the Social Security Administration Act 1992 (functions of the Social Security Advisory Committee in relation to the relevant enactments and the relevant Northern Ireland enactments).

Clause 12: Interpretation of sections

132. This clause contains a number of further definitions that are applied from other Acts.

PENALTIES AS AN ALTERNATIVE TO PROSECUTION

Clause 13

Delegation of functions

Background

133.     Section 15 of the Social Security Administration (Fraud) Act 1997 introduced a new administrative penalty, with the insertion of new section 115A into the Social Security Administration Act 1992. The provision applies "where an overpayment is recoverable from a person by, or due from a person to, the Secretary of State or an authority that administers Housing Benefit or Council Tax Benefit (as defined in the Social Security Administration Act 1992) and it appears to the Secretary of State or authority that administers Housing Benefit or Council Tax Benefit that:

(a) the making of the overpayment was attributable to an act or omission on the part of that person; and

(b) there are grounds for instituting against him proceedings for an offence (under this Act or any other enactment) relating to the overpayment."

134.     Where the provisions in subsection (1) apply, then the Secretary of State or authority may give to the person a written notice:

(a) stating that he may be invited to agree to pay a penalty and that, if he does so in the manner specified by the Secretary of State or authority, no such proceedings will be instituted against him; and

(b) containing such information relating to the operation of this section as may be prescribed."

135.     The structure of these provisions is based on the premise that the Secretary of State and authorities administering Housing Benefit or Council Tax Benefit will act independently of each other in the administration of the penalty system. This reflects the fact that they have statutory responsibility for different benefits. In particular, sections 134 and 139 Social Security Administration Act 1992 confer a statutory duty upon authorities administering Housing Benefit or Council Tax Benefit to administer Housing Benefit and Council Tax Benefit respectively.

The measures in the Bill

136.     The policy is to introduce powers that will facilitate closer working between the Secretary of State and authorities administering Housing Benefit or Council Tax Benefit in the operation of the administrative penalty system. At present, where a benefit offence results in overpayments of Housing Benefit or Council Tax Benefit and another benefit and both the Benefits Agency and the authorities administering Housing Benefit or Council Tax Benefit decide to offer an administrative penalty, each will handle the process separately. This means two interviews and two sets of papers for the claimant.

137.     The aim is both to make the system easier for those persons who may be subject to more than one penalty, and to streamline administrative procedures by enabling the Department and the relevant authority to act together in offering the penalty. This means one interview, not two, and one gross sum recovered. However, the process of recovery will still be the business of DSS and the authority respectively.

COMMENTARY ON CLAUSE 13

Delegation of Functions

138.     This clause inserts two new subsections into section 115A of the Social Security Administration Act 1992.

139.     Subsection (7A) allows the Secretary of State and an authority administering Housing Benefit or Council Tax Benefit to agree to exercise functions under section 115A on each other's behalf or to act together in exercising those functions.

140.     Subsection (7B) precludes the Secretary of State or an authority administering Housing Benefit or Council Tax Benefit from deciding on the other's behalf to offer an administrative penalty.

Clause 14

Colluding Employers

Background

141.     The report by Lord Grabiner concluded that very few offenders are punished. Prosecution in particular takes up large amounts of staff time, so the undoubted deterrent effect it has must be balanced against the high cost. Generally, it is used only in the more serious cases.

142.     The purpose of this clause is to offer to a colluding employer as an alternative to prosecution, an administrative penalty. It is designed to go some way to streamline the sometimes cumbersome prosecution process. In addition to rationalising management of the case, administering the penalty more swiftly following discovery of the offence should have a deterrent effect on the employer and others contemplating a similar offence.

143.     The existing sanctions regime, which includes penalties as an alternative to prosecution for benefit claimants provides a precedent and many details of how such a scheme might work in practice are already established. These include offering penalties only in cases where prosecution is a viable alternative should the offender refuse to accept the penalty offer. The offer is made on the basis that, once it has been accepted, the Department will not then prosecute for that offence, subject to a 28-day cooling-off period during which the person is free to withdraw his acceptance.

144.     The administrative penalty builds upon the report's recommendations, which aim to deter and punish people who are working in the hidden economy. This is compatible with other Government policies, which aim to encourage people to move into a legitimate lifestyle.

The measures in the Bill

145.     This measure introduces a new discretionary power, which provides for the payment of a financial penalty, as an alternative to prosecution. This applies in circumstances where the Secretary of State or authority responsible for administering Housing Benefit or Council Tax Benefit has sufficient evidence to institute proceedings (or request that the Lord Advocate or procurator fiscal consider proceedings in respect of the clause's application in Scotland) against an employer for either of the following kinds of offence.

146.     The first kind of offence is one committed in connection with an inquiry into the employment of one or more employees. It will involve the hindering of an investigation. In these circumstances the employer may be offered a penalty of £1,000 as an alternative to prosecution. The second kind of offence may involve particular claimants, and will relate to acts or omissions that help those claimants to commit offences. In these circumstances the employer may be offered a higher penalty, as an alternative to prosecution, of £1,000 multiplied by the number of employees involved in the fraud, up to a maximum sum of £5,000.

147.     The penalty may be offered to those organisations or people who employ persons to work in any capacity: it will cover all cases in which a claimant works directly for another person, including cases where the claimant is self-employed. The penalty applies not only to the person (or company) who is the actual employer but also to individuals who are within the same organisation and who have a delegated responsibility to appoint staff.

148.     The measures include a regulation-making power to prescribe the information to be included in the written notice which informs the employer that a penalty may be offered.

149.     The employer will not be prosecuted for conduct for which the penalty has been offered where he has made an agreement to pay the penalty. The measures include provision for the employer to withdraw agreement to pay the penalty within 28 days from the date of the agreement. Non-agreement or withdrawal of agreement may result in prosecution for the conduct for which the penalty was offered.

          150.     The measure provides that an unpaid penalty may be recovered as a civil debt, or by deduction from social security benefit where the employer is a claimant and in receipt of benefit.

COMMENTARY ON CLAUSE 14

Colluding Employers

151. This clause has two subsections, the first of which inserts a new section 115B into the Social Security Administration Act 1992.

152.     Subsection (1) provides for section 115B to apply where the Secretary of State for Social Security or an authority responsible for administering Housing Benefit or Council Tax Benefit considers that there are grounds for instituting proceedings (or grounds for referral to the Lord Advocate or procurator fiscal to consider proceedings in respect of the clause's application in Scotland) against a person for an offence in respect of conduct of a type defined in subsection (2). The person is referred to in section 115B as "the responsible person".

153.      Subsection (2) defines the conduct for which there must be evidence of to prosecute. This is either:

(a) conduct which constitutes an offence under the Social Security Administration Act 1992 in connection with an investigation into the employment of one or more employees, or

(b) conduct, which is such as to assist an employee to commit a benefit offence, whether an actual offence occurred or not.

154.     Subsection (3) defines how the Secretary of State offers the invitation to pay a financial penalty and the information he must supply when he does so: the Secretary of State issues a written notice, which informs the 'responsible person' that he may be invited to agree to pay a penalty and that, if he does so in the specified manner, he will not be prosecuted for an offence for conduct described in subsection (2) (and the case will not be referred to the Lord Advocate or procurator fiscal to consider prosecution in respect of the clause's application in Scotland). This subsection also includes a regulation-making power to prescribe other information, which the Secretary of State must supply.

155.     Subsection (4) provides that if the penalty is accepted it may under subsection (4)(a) be recovered as a civil debt and by deduction from benefit in circumstances where the recipient of the penalty notice is in receipt of a relevant social security benefit. Subsection (4)(b) provides that if the penalty is accepted no criminal proceedings for the specific conduct to which the penalty relates will be instituted (and the case will not be referred to the Lord Advocate or procurator fiscal to consider prosecution in respect of the clause's application in Scotland). Section 71(10) of the Social Security Administration Act 1992 (which relates to benefit overpayments) will apply in relation to penalties recoverable under section 115B. This will enable the penalty to be recovered as if it were an amount payable under a court order.

156.     Subsection (5) fixes the amount of the penalty. Subsection (5)(a) provides for a penalty of £1,000 for conduct which falls into subsection (2)(a) but not subsection (2)(b). For conduct falling within subsection (2)(b) subsection (5)(b) and (c) provide for a penalty of £1,000 multiplied by the number of employees involved in the fraud up to a maximum of £5,000.

157.     Subsection (6) gives the 'responsible person' the right to withdraw agreement to pay a penalty, in a manner specified by the Secretary of State, within 28 days of having accepted it.

158.     Subsection (7) (a) provides for the repayment of any amount of the penalty that has already been paid where the agreement to pay is withdrawn. In such circumstances subsection (7) (b) provides that the bar on prosecution will no longer apply.

159. Subsection (8) defines the different circumstances in which an individual is a 'relevant employee' in relation to conduct of the 'responsible person'. Subsection (8) provides that an individual is a relevant employee where:

(a) the conduct described in subsection (2) occurred when the individual was an employee of the 'responsible person'; or

(b) where the conduct described in subsection (2) occurred when the individual was an employee of a body corporate of which the 'responsible person' was a director; or

(c) the 'responsible person' engages in conduct described in subsection (2) whilst claiming to act on behalf of or in the interests of (because of his connection with) any person by whom the individual is employed.

160.     Subsection (9) defines terms used in this section.

161.     Subsection (2) of the clause makes provision for penalties under section 115B to be paid into the Consolidated Fund.

OFFENCES

Clause 15

Offence of failing to notify a change of circumstances

Background

162.     This clause amends sections 111A and 112(1A) of the Social Security Administration Act 1992 (both of which were inserted by the Social Security Administration (Fraud) Act 1997). Before the 1997 Act the only specific offence for social security fraud was a summary offence of obtaining benefit by making a false statement or producing a false document (section 112). The 1997 Act created a new either way offence (section 111A) of dishonestly (or, in Scotland, knowingly) making a false statement or producing a false document with a view to obtaining benefit. The new offence in section 111A also covered failure to notify a change of circumstances which regulations under the Social Security Administration Act 1992 required the person to notify. This further element was also added to the summary offence in section 112 by the insertion of subsection (1A).

163.     The inclusion of "failing to notify a change of circumstance" provisions was aimed primarily at claimants who are paid benefit by automated credit transfer (ACT). A person who is paid by girocheque or orderbook signs a statement to the effect that their circumstances have not changed when obtaining payment. If it subsequently transpires that their circumstances had changed but the change had not been reported to DSS or an authority administering Housing Benefit or Council Tax Benefit they could be charged under the false statement provisions of section 111A or section 112. However, where benefit is paid by ACT no such false statement would exist because payment has been made directly into the claimant's bank account. These provisions are also useful in cases paid by order book or girocheque where the offence has continued over a long period of time. Hitherto DSS has had to rely on specimen false statements spanning the period in question, which could give the court a misleading picture of the gravity of the offence.

164.     The proposed changes restructure the provision to relate to changes which a person knew would affect entitlement to benefit, rather than to changes which regulations require him to report. As increasing numbers of beneficiaries opt to receive payment of social security benefits through ACT, the need for this change has become greater.

COMMENTARY ON CLAUSE 15

165. Clause 15(1) and (2) omit paragraphs (b) and (c) from section 111A(1) and insert new subsections (1A) to (1C).

166. Subsection (1A) defines the new offence of "dishonestly" failing to give prompt notification of a change of circumstances in relation to the claimant himself. Subsection (1B) defines the offence in relation to a third party who dishonestly causes or allows another person to fail to give prompt notification of a change in circumstances. This would address, for example, the obligation upon a landlord to notify the authorities administering Housing Benefit and Council Tax Benefit where a Housing Benefit claimant ceases to rent a property in respect of which benefit is payable. In both cases the failure is defined in relation to notifying the prescribed person in the prescribed manner. These requirements will be set out in regulations.

167.     Subsection (1C) provides that notification is "prompt" if given as soon as reasonably practicable after the change occurs.

168.     Clause 15(1) also amends section 111A(4) so that, in relation to the application of the new subsections (1A) and (1B) in Scotland, the word "dishonestly" is removed.

169.     Clause 15(3) makes changes to the summary offence in section 112, which mirror those made to section 111A.

Clause 16

Time Limit for Proceedings in Scotland

Background

170.     Part VI (Inspection and Offences) of the Social Security Administration Act 1992 makes provisions for enforcement, and contains a number of specific offences relating to benefit fraud. Section 111A of the Social Security Administration Act 1992 (dishonest representations for obtaining benefit) was inserted by section 13 of the Social Security Administration (Fraud) Act 1997. At the same time, paragraph 5 of Schedule 1 to the 1997 Act amended section 116 of the Social Security Administration Act 1992 (legal proceedings) to disapply provisions concerning limitation for the purposes of prosecutions under section 111A of the Social Security Administration Act 1992.

171.     Subsection (2) of section 116 provides that proceedings for an offence under the Social Security Administration Act 1992 may be begun at any time within a period of three months from the date on which evidence sufficient to justify a prosecution for the offence comes to the Secretary of State's knowledge (or that of the relevant authority in the case of Housing Benefit or Council Tax Benefit cases), or within a period of 12 months from the commission of the offence, whichever is the later date. The Social Security Administration (Fraud) Act 1997 modified this general rule by inserting subsection (2A) which provides that subsection (2) shall not be taken to impose any restriction on the time when proceedings may be begun for an offence under section 111A above.

172.     Subsection (7) of section 116 of the Social Security Administration Act 1992 modifies the application of that section as it applies to Scotland, and remained unamended by the Social Security Administration (Fraud) Act 1997. It provides limitations as to the time in which a prosecution must be brought in relation to proceedings under the Social Security Administration Act 1992.

173.     No provision equivalent to subsection (2A) of section 116 was made in the 1997 Act for the purposes of prosecutions in Scotland.

The measures in the Bill

174.     This measure corrects the omission by disapplying the time limitations specified in subsection (7) of section 116 of the Social Security Administration Act 1992 in relation to prosecutions under section 111A of that Act in Scotland.

COMMENTARY ON CLAUSE 16

175.     The clause amends section 116 (7) of the Social Security Administration Act 1992 which provides time limits for the commencement of proceedings in Scotland. The effect of the amendment is to prevent those time limits from applying in relation to offences under section 111A of that Act.

FINANCIAL EFFECTS OF THE BILL

Overview

176.     The financial implications of the Bill are set out below. In summary, the Bill is expected to lead to a significant increase in the detection of fraud. Reductions are expected in benefit expenditure. The measures within the Bill are expected to result in gross savings of between £200m and £400m per annum. The measures in this Bill are primarily expected to improve our ability to detect and investigate fraud and error in means-tested benefits. Therefore, there will be a minimal effect on contributory benefits and the National Insurance Fund.

177.     The measures in the Bill are expected to result in a cost to business of between £2.5 and £7.6 per annum. The cost to authorities administering Housing Benefit or Council Tax Benefit is expected to be approximately £1.65m per annum, and the cost to Government is expected to be approximately £3.65m per annum with additional one-off set-up costs of £0.75m.

178.     The measures set out within this Bill are not expected to have any significant effect on public sector manpower.

Obtaining and sharing information

Additional powers to obtain information (clause 1)

179.     This measure allows DSS to require information from the private sector which will enable DSS to identify benefit frauds currently undetected. This measure will affect around 200,000 people who are fraudulently obtaining benefit. Savings will be in the range of £200m - £400m per annum. Mainly means-tested benefits will be effected and so there will be no significant effect on the National Insurance Fund.

180.     It is estimated that the cost of these measures to business will be between £2.5m and £7.6m per annum, the cost to authorities administering Housing Benefit or Council Tax Benefit is estimated to be £1.65m per annum and the cost to Government is estimated at £3.65m per annum (with initial set-up costs of £0.75m). The effect on public service manpower is thought to be negligible.

Obtaining information from overseas authorities- clause 4

181.     There will be no immediate financial effects as a result of this clause as effects will only be measurable when other countries have taken similar measures to allow the mutual exchange of information. Any amounts in terms of savings or expenditure would depend on the agreements reached with those countries. Although fraud investigations have uncovered instances of transnational fraud, we are unable to provide estimates of the overall level. We hope to be able to investigate fraud and error in both means-tested and contributory benefits. We anticipate that the split between the Consolidated and the National Insurance Fund will be approximately 90:10.

Exchange of information by authorities administering benefit - clause 5

182.     This proposal concerns the manner in which authorities administering Housing Benefit or Council Tax Benefit supply information to the Secretary of State and to other authorities administering Housing Benefit or Council Tax Benefit. It does not effect individual claimants and there will be no administrative or financial effects

Loss of benefit provisions - clauses 6 to 12

183.     This measure concerning loss of benefit provision will produce savings to the extent that it will deter fraud. It is difficult to quantify such savings in advance of the actual implementation of the measure. As the measure is concerned with mainly means-tested benefits, the vast majority of savings will fall to the Consolidated Fund. The administrative cost of this measure is expected to be £0.05m per annum from 2002/2003 with initial set up costs of a further £0.05m in 2001/2002. We do not anticipate any effect on public services manpower.

Penalties as an alternative to prosecution

Colluding employers - clause 14

184.     The colluding employers measure, in the same way as loss of benefit provisions, will act as a deterrent against fraud and so produce savings. The amount of such savings is difficult to quantify in advance of the actual implementation of the measure. All savings will fall to the Consolidated Fund. Employers who have been colluding with employees in order that employees can fraudulently obtain benefit will be subject to a fine of £1,000. Initial set-up costs for the implementation of this measure will be approximately £0.03m due to necessary IT enhancements.

Offences

Offence of failing to notify a change of circumstances - clause 15

185.     The Social Security Administration (Fraud) Act 1997 amended the Social Security Administration Act 1992 creating two new offences in relation to failing to notify a change of circumstance which would effect benefit entitlement. The purpose of this new measure is to amend sections 111A and 112(1A) of the Social Security Administration Act 1992 to ensure that the new offences complement properly the Department's move towards more modern methods of paying benefit, such as automatic credit transfer. As this measure is, therefore, essentially corrective in nature, it is not anticipated that it will result in increased costs to the public sector.

186.     Where no financial effects have been cited in connection with a clause in the Bill, none have been identified.

 
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Prepared: 19 December 2000