New Clause 2 - Fraud

State Pension Credit Bill [Lords] – in a Public Bill Committee at 10:45 am on 25th April 2002.

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'The Secretary of State shall as soon as practicable after the end of the fiscal year 2004–05 and as soon as practicable after the end of each year thereafter lay before Parliament a report setting out—

(a) the extent of fraud in state pension credit claims; and

(b) the measures he has taken to deal with fraudulent claims for state pension credit.'.—[Mr. Clappison.]

Brought up, and read the First time.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury) 11:00 am, 25th April 2002

I beg to move, That the clause be read a Second time.

We now come to the entirely different subject of fraud. The amendment is modest but important. It proposes that the Government set out a report each year before both Houses that contains a statement as to the extent of fraud in state pension credit claims and what measures they are taking to deal with the problem. Fraud is taking place across the range of benefits—in credits, social security payments, credits administered by the Inland Revenue, and so forth. Fraud is an important subject and we need to know what the Government are doing about it, because a substantial amount of public money is at stake.

We have raised the question of fraud throughout the deliberations of Committees on tax credits, especially on the working tax credits in the new Tax Credits Act 2002 and the working families tax credit. We are still waiting for an answer from the Government about the prevalence of fraud in working families tax credit. They initiated a survey—a benchmarking exercise—to discover the extent of fraud within that credit, but it was abolished before we got sight of the survey report. We are still waiting, and the Treasury seems shy about telling us how much fraud there is. We hope that Ministers in the Department for Work and Pensions will do a little better than their colleagues in the Treasury.

Fraud is an important subject. In evidence to the Public Accounts Committee in July 2000, the Department gave its estimate of the level of fraud throughout the social security system as approximately 3 per cent. of benefit expenditure. Estimates vary depending on whether fraud is proven or suspected. One Government Minister said it could be as low as £2 billion or as high as £7 billion, if one took into account cases of suspected as well as proven fraud.

In the course of our deliberations, we have already made observations about the prevalence of fraud within pension credits and benefits for the elderly. It may be less prevalent among elderly people claiming benefits and taking up benefit entitlements, but it is not unknown. However, instances of fraud appear to be low in respect of retirement pension, and the same is true of other universal benefits with age-related entitlements.

Fraud seems to be greatest in means-tested benefits, not least because of their complication, which sometimes encourages people to embark on fraud. If a benefit is complicated, people might commit fraud and then find themselves trapped in fraudulent situations. The pension credit is a means-tested benefit, so we should be on our guard about fraud. We should therefore be grateful if the Minister would tell us what steps the Government will take to ascertain the level of fraud in pension credit. We hope that he can also give us details about who will investigate the fraud, and whether investigations will be made on the same basis as others carried out by his Department.

We would also like to know the Government's strategy for dealing with fraud in pension credit. We seek reassurance that they are doing all that they can, both in the Bill and in secondary legislation, to design out that fraud. We make no apologies for raising the subject, as we think that it is important. We want to save public money, and get it to the people who are properly entitled to it, not those making fraudulent claims.

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

This is perhaps the third occasion that we have discussed fraud, but I am not complaining. As I said on the previous two occasions, we all recognise that we are not attacking and impugning the character of pensioners per se. We are holding a genuine debate, which must take place, on the design of a new form of income. We must also discuss how the credit impacts on the Government's strategy of fraud prevention, how to establish when fraud is taking place, and the processes for dealing with it by means of the legal system.

Although I have no problem engaging in discussion with the hon. Member for Hertsmere (Mr. Clappison) on the subject, I am a wee bit disappointed. I thought that when we discussed it previously I gave as full and as frank an explanation as one could give at this stage. Also, by offering to have further discussion with officials, I had indicated that we were in an ongoing process. It is worth saying that, as we are bringing in a brand new benefit and scrapping the weekly means test, we have to rethink the strategy for measuring underlying losses caused by fraud or error.

Our Department's fraud investigation service has worked with us from the outset in designing both parts of the pension credit: the minimum income guarantee and the guarantee credit. There is also inter-relationship with working-age services and the Pension Service in the development of their business strategies. It is an integral part of both the development of the policy and its outcome—the implementation strategy—that those in the Department with expertise in the subject of fraud work with us. It is important to say that from the outset. Measures against fraud are not seen as a peripheral issue or an add-on. They are part of the integral core activities in the design and implementation of pension credit.

The new clause would place a statutory requirement on the Secretary of State to report annually to Parliament on the level of fraud in pension credit and the measures taken to deal with fraudulent claims. We believe that the new clause is unnecessary; we do not need a statutory requirement for an integral part of our business. As the weekly means test no longer applies, the pension credit will significantly reduce the scope for mistakes, and with that for fraud, on the part of the claimant. Many mistakes are made because pensioners forget to, or do not realise that they have to, report a change in circumstances—most commonly an increase in their capital or their second pension.

However, we are not so naive as to believe that we have completely removed the potential for fraud, or that pensioners never steal from us. Figures show that 3.2 per cent. of MIG claims are fraudulent. That is about a third of the level of fraud in benefits for lone

parents, and well below the figure of 9 per cent. for fraudulent job seeker's allowance and incapacity benefit claims. Pension credit has the least fraud of any of the benefits for which we have indicators, but fraud still occurs. Pensioners are just as determined as we are that they should not be defrauded by fellow pensioners—that minority of a minority. It is therefore in all our interests to get this right, and in a non-partisan way.

I do not believe that there is a difference between the political parties on the concept of getting rid of fraud. Arguments have been advanced in the past about whether parties could clamp down on fraud as they claimed to want to do and about how best to do so. However, we all appreciate the benefit to the citizen and the taxpayer if fraud does not take place, whether at a low, medium or high level, and of tackling it and bringing to justice those who perpetrate it.

I am trying to make it clear to the hon. Gentleman how seriously we take the matter in designing pension credit. I hope that at the end of my remarks he will be sufficiently secure to say that he has made his point, that the measures that we are putting in place will be preventive and that we have the capacity to deal with fraud both in the transitional arrangements to transfer the old MIG, or income support, system to the new pension credit system, and when the new system is effectively up and running.

As I said, we are not naïve about the potential of a minority of pensioners to steal from us. The key to success in preventing fraud in pension credit is to ensure that the application process is secure. The design of the process is still being refined, with that purpose in mind. As I said earlier, I shall be more than happy on another occasion to discuss with the hon. Gentleman how that will be achieved.

Since day one, experts involved in the Department's fraud strategy have been involved in the design and are playing a key role in ensuring that the process is as secure as possible. That is not to say that the application process will be off-putting for pensioners. The balance must be correct. We do not want to meet a public perception of dealing with fraud in a way that is so off-putting that it deals neither with fraud nor with pensioners' capacity to be put off by the bureaucracy involved or to be confused by the bureaucracy and to fall into fraud through no fault of their own.

As the hon. Gentleman says, it is important that the design features design out fraud. However, they must also tackle fraud in existence intelligently. We must get the balance right and ensure that the process is simple but not simplistic and has the capacity to catch those who intend to defraud or attempt to do so. That involves working intelligently behind the scenes with information provided in order to identify rogue claims. For example, it might be possible to identify an undeclared occupational pension from the details of a person's retirement pension calculation. We shall use existing intelligence in the system alongside the new design features that will be available.

The new clause is restricted to fraud. It is imperative that fraud should be rooted out, but what about other forms of incorrectness, such as genuine error on the part of the claimant or departmental error? Such cases do not constitute fraud in common language, but they are the main causes of benefit being overpaid or, indeed, underpaid to the pensioner involved.

When the Government first took responsibility in 1997, although the Department was far from short of targets for its anti-fraud activity—on number of visits, number of fraud referrals, weekly benefits savings from detected fraud, and number of claims withdrawn—there was nothing on which success in removing fraud and error from the system could be judged. There was no process for judgment.

Success can be measured only in terms of outcome. The key question is, has the level of losses from fraud and error been reduced? That is the basis of our public services agreement target for reducing fraud and error in income support and jobseeker's allowance. We are in the process of developing a robust strategy for measuring losses from fraud and error in pension credit, too. The hon. Gentleman asks whether we shall be able, in the public domain, to judge reductions in fraud, loss and error as we have for income support and jobseeker's allowance. The answer is yes.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury) 11:15 am, 25th April 2002

I am listening carefully to the Minister. His comments are helpful, but I ask him to go a step further and say that his Department will place in the public domain the results of its investigations and analysis, and targets.

Photo of Ian McCartney Ian McCartney Minister for pensions, Department for Work and Pensions

Current targets are in the public domain, as I shall discuss in a moment.

Targets must be meaningful and outcome-based. We are the first Government to have such a strategy. The hon. Gentleman asks us to extend to pension credit a strategy that has been in place since 1997. He does not need to ask exactly what the strategy will be. It will be an extension of that strategy, based on design features of pension credit, not on jobseeker's allowance or income support, for obvious reasons. That needs to be done in consultation with the National Audit Office in considering carefully how underlying fraud and error can be most accurately measured. We also need to consider carefully how to devise an effective approach that minimises intrusion into pensioners' lives.

The new clause would be redundant. It would remove an important safeguard in the impartiality of the fraud and error figures.

The hon. Gentleman asks whether information will be in the public domain. It will. In addition, publication will be independent. Impartiality is important. Let us be honest: a political brickbat over the years has been who has the best policy on fraud and who has done most on fraud. Most Opposition parties base their alternative Budgets on filling up the black holes and getting rid of fraud. The hon. Member for Northavon laughs, but that is true of 90 per cent. of his Budget. They add up the fraud and say, ''That's fine. We're about £1.9 billion short of our target, so

we'll fill that up with fraud. That'll make us feel good.'' It is a classic. Let us be honest—we are in the open here, and we may as well be transparent about each other's views on such matters.

We have to do better than that. A genuine effort is being made to put in place a preventive strategy and, when that strategy fails and someone is involved in fraud, to challenge and stop that fraud on behalf of the citizen and the taxpayer, and to deal with the person who has perpetrated the fraud. Those three pillars are important.

The fourth pillar is public accountability. That is what we are dealing with here—how we can, through important safeguards of impartiality, have transparent ways of finding out whether the Government are achieving what they set out to do in reducing fraud and error. Those four pillars are a significant step forward from where we were pre-1997. I hope that the hon. Gentleman will accept what I suggest as something that will meet his requirements.

Publications from the Office for National Statistics are subject to a strict protocol under which Ministers have no say in either content or timing of release. Now there's a thing to shiver my timbers. I did not realise that. That is going a bit too far. Does Alastair Campbell know that? It is not possible to get any better than that. I would even argue that a fifth pillar has been sneaked in there.

Seriously, however, I am trying to show how the days of yah-boo about fraud and error should be over. We have put in place intelligent business systems in designing our products in order to prevent fraud, seek it out, stamp it out, deal with perpetrators and allow in a transparent and impartial way the public and the House to see how we have dealt with fraud and error. Along with fraud, error is important. We have concentrated on fraud. Fraud is a fraud on the taxpayer and the citizen. Error is a damning indictment of a system because it impacts negatively on the individual who should not have been the subject of error. The processes for dealing with error are transparent, independent and impartial.

We will do everything that we can as we progress through the implementation of the strategy, and I have no problem with working with colleagues in the House to ensure its success. We are absolutely determined to root out fraud and reduce error to the barest minimum although I cannot hold up my hand and promise that, in a million contacts a day, there will not be someone somewhere who is dealt with inappropriately. I will, however, apologise each time that it happens.

Indeed, there is a new system. Whenever a complaint is brought to my attention, as well as writing to the hon. Member concerned, I write a personal letter of apology to the constituent on the hon. Member's behalf because it used to get right up my nose when I received a letter from a Minister saying, ''Please apologise to a constituent on my behalf.'' Why? The Department made the error. The buck stops at my desk, even if I did not know about the error. We have introduced a system of personal apologies from Ministers to constituents who have been the victim of an error.

It is a question of culture. If I ask staff to change their culture and become ambassadors on behalf of older people while doing their day job on the front line, at the very least I should give leadership. I am prepared to put up my hand as a Minister and apologise. Whenever possible—occasionally we can—we should pay compensation for the error. It is important for Ministers to show leadership.

We are determined to root out fraud and error, but I hope that hon. Members will agree that the vast majority of older people are honest, upstanding citizens. The measures are about protecting those citizens in particular and the taxpayer in general, because taxpayers pay for the system through tax and national insurance contributions. We have taken the hon. Gentleman's amendment seriously. I hope that he will agree that the measures that we are taking and will continue to take more than meet the problem, and that he will withdraw his amendment.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

I shall certainly look very carefully at the Minister's considered remarks and the strategy that he outlined. However, I emphasise that we need information to determine whether the strategy is working. We need benchmarks for current levels of fraud that are based on robust evidence before we can determine what impact the strategy is having.

I agree with the generality of the Minister's comments about older people, and about people who commit fraud because of complication. However, I was not quite with him when he said that people could come into fraud through no fault of their own. I know what he was getting at, but, in order for fraud to be committed there must be intent to commit fraud, which is what he later said.

In his earlier remarks, the Minister was possibly referring to people who become involved in fraud even though their applications were not fraudulent. One way or another, they find themselves trapped in fraud. There is a greater risk of that happening when things are complicated, because people are exposed to more temptation. We must always be careful that, when an allegation of fraud is made, it is proven according to strict standards, the intent to defraud is proved and that we all understand what that is.

Photo of Julian Brazier Julian Brazier Opposition Whip (Commons)

My hon. Friend makes a powerful point. There are many advantages to adopting a five-year system. However, one of the problems is that, should pensioners discover some time into the assessment that they have got their calculations wrong for three or four years, the prospect of making a potentially huge repayment could be a strong incentive to keep their head down and not own up to something that they would never have deliberately done.

Photo of James Clappison James Clappison Shadow Spokesperson (Treasury)

It is my hon. Friend who makes the powerful point, because that is absolutely right. I dare say that there are other ways in which complication can expose people to a high temptation to commit fraud. We know that older people are generally more honest and we often look to the older generation for examples of how to behave honestly and decently.

The Minister's remarks about design are also important, and I urge the Government to bear those

in mind throughout the design stage to find ways in which to design out fraud. For an example of fraud suddenly coming to light, we need look only at the individual learning accounts in the last Parliament.

It being twenty-five minutes past Eleven o'clock, The Chairman adjourned the Committee without Question put, pursuant to the Standing Order.

Adjourned till this day at half-past Two o'clock.