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Baroness Hollis of Heigham: He or she would. The noble Baroness is absolutely right to raise the issue.

Baroness Noakes: In the light of that response, I should like to reflect further on the matter. However, the response addresses many of my concerns in tabling the amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 87 not moved.]

Lord Higgins moved Amendment No. 88:


The noble Lord said: In moving Amendment No. 88, I should like to speak also to Amendments Nos. 89, 90, 91 and 92, and to the Question that Clause 14 stand

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part. Much of the Bill that we have debated so far results from the excellent report by the noble Lord, Lord Grabiner, to whom the Committee is grateful. But the Committee will be aware that another report was prepared by Mr John Scampion, a commissioner of social security, and placed in the Library of the House of Commons on 24th January 2000. That report was the result of a government-ordered independent inquiry. The recommendations of that report appear to be reflected to a very small extent, except perhaps in relation to Clause 14, in the present Bill. Therefore, the purpose of these amendments is to reflect the concern expressed in the Scampion report that any penalty should include a means of recovering the amount defrauded and should act as a deterrent. Unlike a moment or two ago, in this context we are not speaking of someone who commits fraud and, if his benefits are removed even by 10 per cent, finds that the penalty is severe. Clearly, the people who are engaged in this kind of fraud are well able to bear the penalty. Therefore, in relation to this clause it seems appropriate that, as in other areas of law, criminals should provide redress as far as concerns their ill-gotten gains. Amendment No. 88 and the other amendments in the group relate largely to that point.

There is a broader point in relation to Clause 14 which has not been touched on other than perhaps at Second Reading. While various aspects of the Bill have much to commend them--although we have concerns about the side-effects which have been debated at length in Committee--on this particular issue we doubt whether the Government have put sufficient resources into combating fraud. I believe I pointed out at Second Reading that the rate of return from further investment would appear to yield far more than the cost of devoting more resources to it. The Bill may turn out to be necessary, but even if such legislation was not being introduced, we should be investing far more in the detection of fraud. All the analyses suggest that that would reduce, not increase, the net burden on taxpayers.

At earlier stages we spoke about organised crime and so on. In a sense the clause relates to that, although there may be other areas where further investment may produce a good rate of return and reduce the level of crime. However, not only are the level of resources not adequate but the matter is not being pursued with sufficient enthusiasm, if I may put it that way. The Audit Commission's report on protecting the public purse shows that one local authority in eight does not have a whistle-blowing strategy and one in six does not have an anti-fraud strategy in place. That is an extraordinary situation.

Baroness Hollis of Heigham: Has the noble Lord seen the figures which the Audit Commission quotes from the previous year which show by how much local authorities have improved their performance?

Lord Higgins: I am all for them improving performance, but it is still--

Baroness Hollis of Heigham: The noble Lord cannot say that we are not doing anything when as a result of

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our initiatives the Audit Commission is able to show substantial and valuable progress being made by local authorities since we have come to power.

Lord Higgins: I am not saying that. I am saying that even at this level, although progress may have been made, the reality is that faster progress could be made, and with an increase in revenue compared with the costs. The gap is substantial. There is no reason why more rapid progress should not be made. I pay tribute to the point made by the noble Baroness, but the figures produced by the Audit Commission for the overall situation are still fairly bad. Therefore, we hope that more can be done in relation to the recommendations of the Scampion report.

In that context, can the Minister tell us exactly where we stand on some of the recommendations in the report? For example, there was a proposal for a single benefits investigation agency in place of BASIS and BFIS. I am not clear whether or not that has happened. Perhaps she could tell us whether it has. Also, is the benefits intelligence directorate now in operation? There was some coverage of the matter in the press a few days ago. The position is not entirely clear.

In the context of Clause 14 overall, it would be helpful to have a statement by the Minister which is a little more forthcoming than that which my honourable friend Mr Pickles, in another place, received from Angela Eagle, the Minister who replied on the issue of benefit fraud. Against the overall background of the Bill, it would be helpful if we can establish whether as much as can be done is being done to cover the broader aspects of what we have described earlier as "the heavy end of the market". I beg to move.

Baroness Hollis of Heigham: The noble Lord, Lord Higgins, has spoken on specific points as well as to the amendments. Perhaps I may try to deal with them and then come back to some of the broader issues he raised.

Working while claiming is the most significant area of benefit fraud, costing the taxpayer around 500 million every year in income support, JSA and housing benefit alone. Often fraud exists. We are talking about collusive employers and not other forms of fraud on local authorities, such as in relation to housing benefit and so on. That is a different area of the Bill. I shall not be tempted by the noble Lord to discuss local authorities because we have already done so. We are now dealing with collusive employers.

However, prosecuting such employers is usually lengthy and always expensive. It is not always the most effective way to tackle the problem. That is why we are going for a swift civil penalty for small-time offenders to streamline the process.

Current legislation provides a number of offences under which a collusive employer can be prosecuted. But the process is often time-consuming and costly. Even the most straightforward case can be heard in court twice, and sometimes a third time. That ties up resources. So we seek financial penalties in cases which

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would otherwise have merited going to court, and where, obviously, they have been accepted by the employer as an appropriate alternative.

It may be helpful by way of example to describe the type of case for which a penalty might be offered. In a recent case, the owner of a sandwich bar deliberately furnished Benefits Agency inspectors with false information relating to the working hours and wages of an employee to support a fraudulent claim for benefit. The fraudulent overpayment in respect of the employee amounted to about 450. On being presented with evidence of his collusion, the employer admitted guilt. The case went to court. He was convicted and ordered to pay a fine of 1,000 and legal costs of 650. In such a case the penalty would save time and resources that may otherwise be engaged in lengthy court proceedings. In addition, it is in everyone's best interests.

There are cases for which a penalty would not be appropriate and where prosecution would be the first option. For example, in a different case, the owner of a plant hire company deliberately obstructed Benefits Agency fraud inspectors during an investigation and produced a false list of employees to conceal the fact that he was employing benefit claimants. He even allowed employees time off to go and sign on to claim benefit for being unemployed. Investigators working jointly with Customs and Excise also found evidence of dishonest evasion of VAT to the tune of 130,000. Although he had declared zero-rated work for VAT purposes, the employer's turnover was far greater. In addition, he was charging customers VAT which he did not pass on to Customs and Excise.

Penalties would not replace prosecution for that kind of serious case of collusion; rather they would extend the range of punitive measures for small-time offenders. We seem to be back to small or large and soft or hard. An administrative penalty of between 1,000 and 5,000 offered to a collusive employer as an alternative to prosecution-- with the 28-day cooling-off period previously discussed--sends a strong message that operating in the informal economy to the detriment of fair employers carries a high price. Those who decline the offer of a penalty would go to court.

I turn to Amendments Nos. 88, 89, 90, 91 and 92. The amendments have the effect of undermining the purposes of the clause. They add complexity to the scheme and could, conceivably, discourage employers from accepting the penalty and, instead, persuade them to take their chances in court.

The amendments seek to penalise the employer with an extra charge, on top of the penalty, based on the amount of the employee's fraudulent overpayment. Therefore, where the employer's act of collusion results in an overpayment of benefit, he would be offered a bigger penalty. That adds complexity to the scheme which I do not believe is particularly fair.

The majority of small-time offenders, at which the penalty is aimed, are currently prosecuted for giving false information. The employer's offence is normally to tell a lie at a specific point in time in relation to his

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employees. However, it is very difficult to tie the individual employee's overpayment to the employer, principally because the employer is unlikely to know what benefit he or she receives. For example, an employer may lie to fraud investigators in respect of one of his or her employee's hours of work or amount of wages. That would constitute an offence. But it does not mean that the employer is responsible for the length of time that the employee's fraud might have gone on, the benefits claimed, or the rate at which they were paid. That is why I believe that it would be unfair.

In the majority of cases it is unlikely that sufficient proof could be obtained to apply the charge under the amendments. It would make calculating the amount of the penalty more complicated for investigators to administer and for employers to understand. If the additional charge is applied, it is unlikely that an employer would even agree to pay it in preference to going to court, which could show that he was not aware of whatever was going on.

The clause already reflects a maximum penalty that a court might impose if an employer is prosecuted and convicted. An additional charge, such as that suggested in the amendments, is likely to take the total penalty beyond that of a court sentence. It would, therefore, remove any incentive for an employer to agree to the penalty. It would actually undermine the purpose of the clause which is to punish small-time offenders without unnecessary prosecutions. As I say, that could well be unfair because he would be penalised for parts of the offence that were not committed by him but by the employee. Therefore, this would not be fair to the employer.

The size of the penalty already strikes the right balance. It acts as a sufficient punishment and deterrent against future fraud, but is a realistic alternative to prosecution. Employers would be given a clear choice: they can accept a penalty of between 1,000 and 5,000 or their case will be submitted to the prosecuting authorities for consideration. As an alternative is always available and the people concerned can decide whether to accept the offer of a penalty, the amount is not a sentence but a consistent benchmark against which the employer can make his own judgment. It also has the advantage of simplicity. They would be able to make that decision without fear that there may or may not be subjective judgments about how long it might have lasted and so on.

It is very often suggested--although not particularly today--that this is about an undue burden on business. The only people burdened are those who are committing fraud, whose case would warrant prosecution but, because they have admitted guilt, they prefer to accept a penalty to the advantage of all parties concerned in that it releases resources to go after even more complicated cases which are certainly above the 5,000 figure. We think that employers who facilitate fraud should be punished, but the court system is not the answer in every case. That is why we have brought forward the clause.

I have responded in detail to the amendments and to the clause. The noble Lord, Lord Higgins, ranged widely in his Clause 14 stand part speech. He produced

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much material that was not even relevant to Clause 14 but was more appropriate to Second Reading. The noble Lord is not sure which path to take--whether he seeks to reduce the impact of the Bill or whether he thinks we are not attacking fraud sufficiently seriously and he wishes to strengthen this Bill. If that is the case, I look forward to seeing amendments from him in due course asking us to increase the penalties. Behind this lies the charge that we are not doing sufficient about fraud, that we could do more and do it faster.

I take issue with that. Figures released at the end of last month for benefit paid between April 1999 and April 2000 show that losses from fraud and error had dropped by 6.5 per cent. It is now the case that 404 out of 409 local authorities have online access to essential benefit information held on DSS systems. That will save 24 million. Three hundred and eighty-eight local authorities are now receiving housing benefit claims electronically via the department; 246 local authorities are signing up to perform tougher identity checks on housing benefit claimants; 359 local authorities have signed up to the scheme with the Royal Mail to stop housing benefit claimants acting fraudulently by having their mail re-directed from false addresses. This year specialist identity checks will be launched nationally, as piloted in the Balham area since June 1997, where there have been over 200 arrests. Cross-checking DSS records and other state records has already saved over 150 million, and we will be able to extend this role. Over and beyond that, we have made clear that we have targets to reduce income support and JSA fraud by 25 per cent and over the next five to 10 years I believe--and I would need to check--by 50 per cent in all.

I do not take seriously the charge made by supporters of the previous government, who for 18 years did very little about fraud. It has been left to an in-coming Labour Government to tackle something that corrupts the system. I think that it will be confirmed by the Audit Commission that local authorities in particular, but government in general, have made very substantial progress--more in three years than in the preceding 10 years--in trying to eradicate fraud. Therefore I do not take the noble Lord's complaints on this front seriously.

The noble Lord asked about the Scampion report and why no single investigation agency is being established as recommended. We have set up a new fraud intelligence unit as recommended by the Scampion report. It is headed by a former deputy head of MI5, a point which amused your Lordships previously. We have set up a new chief investigator's office, as was recommended. Scampion has welcomed what we have done and regards our progress as very acceptable indeed. I hope that I have addressed the points raised by the noble Lord. Indeed, I have tried to answer some of the points that have nothing to do with Clause 14. I have done so in the spirit of dissemination of, I hope, useful and accurate information.

7 p.m.

Lord Higgins: Some of what the noble Baroness said was helpful. I am still concerned about her reaction to

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Amendment No. 88 and related amendments. It seems clear that the Government are so enthusiastic about the proposals for a quick penalty settlement rather than going to court that in a number of cases the fact that a penalty is imposed will not cover the loss to the Exchequer of the fraud which has taken place. The Scampion report makes it clear that any penalty should include a means of recovering the amount of funds that have been defrauded. The noble Baroness seems to be setting her face against that proposal on the grounds that, if we did that, people would not settle for a penalty and they would have to go to court.


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