Tackling Benefit Fraud (HC 393) Public Accounts Committee 3 Mar 2003

Mr. Gerry Steinberg (City of Durham): I should like to begin with paragraph 26 on page 7 which tells us that your new subsidy scheme was introduced to fund local authorities' anti-fraud work from April 2002. Can you tell us something about that new subsidy scheme and how it works?

Mr Clark: It is a subsidy scheme which was brought in to replace some of the deficiencies in the scheme which preceded it. The scheme which was there before placed a great emphasis on detecting fraud as opposed to fraud and error, with a result that it was heavily criticised for encouraging local authorities to represent as fraud things which really were not fraud. It was producing some slightly strange results in terms of the amount of declared fraud which was being brought forward. We tightened up on the parameters for doing that. That still did not solve the problem. We also had some concerns about the incentives within the scheme for taking forward some of the work round sanctions and prosecutions that we felt was important as part of the overall deterrent which should be applied to fraud in housing benefit. From April 2001 we introduced a pilot scheme on a voluntary basis, to which 63 authorities signed up. We adjusted that during the course of the year because we found we needed to adjust the thresholds and it has been the national scheme since April 2002.

Mr. Gerry Steinberg (City of Durham): How many local authorities administer this scheme? All 408?

Mr Clark: Yes.

Mr. Gerry Steinberg (City of Durham): They have all participated in it.

Mr Clark: Yes; basically they have been told this is the scheme for getting subsidy.

Mr. Gerry Steinberg (City of Durham): Presumably it is working; it has been going a year.

Mr Clark: Yes.

Mr. Gerry Steinberg (City of Durham): Following the information Mr Field was requesting, do you have information on every local authority's performance over the last year or since the scheme has started?

Mr Clark: Yes, we get returns from local authorities on the subsidy they claim and therefore the amount of adjustment for fraud they are detecting.

Mr. Gerry Steinberg (City of Durham): So you could produce for us a list of every local authority in the country which administers housing benefit. You can tell us what they have claimed from the subsidy scheme, but you can also tell us the success rates they have had in the amount of fraud they have detected and how many prosecutions they have had since then.

Mr Clark: Yes, we can do that. I would not swear to the latest date of the available information.

Mr. Gerry Steinberg (City of Durham): Can you give us that information?

Mr Clark: We can do that.

Sir Richard Mottram: Can we see what precisely we can give you?

Mr. Gerry Steinberg (City of Durham): Yes, I would not expect you to give it now. Do you think local authorities take it seriously enough?

Mr Clark: If you look at one of the key things we introduced with the new subsidy scheme and the introduction of a really pretty significant incentive for taking prosecutions and administering cautions and administering penalties and you look at the extent to which they have risen, they have risen phenomenally from a very low base in 1998-99. There is very good evidence there that local authorities are ---

Mr. Gerry Steinberg (City of Durham): You are looking into what I was going to ask. Frankly, the performance of local authorities last time we looked at this was pretty dismal, was it not?

Sir Richard Mottram: Yes.

Mr Clark: Yes.

Mr. Gerry Steinberg (City of Durham): That brings me to page 52, Figure 30. I was criticising local authorities, but if you look at the findings from the Benefit Fraud Inspectorate on the relationship with local authorities it makes pretty dismal reading, does it not? "Failure to give appropriate emphasis to closer working with local authorities; no clear ownership or strategy to deliver closer working; lack of guidance, policies, management information ...; failures to monitor and meet Service Level Agreement ...; poor awareness of the links between benefits administered by the Benefits Agency and Housing Benefit".

Sir Richard Mottram: Yes, it goes on.

Mr. Gerry Steinberg (City of Durham): It sounds quite bad, does it not?

Sir Richard Mottram: It was a very poor picture and this is goes back to September 2001 and the point you were making about where we were then. Obviously in the light of this a lot of effort has been put in, to build in a different relationship between the department and local authorities and we have created new fora which we could describe to you, which have built a completely different relationship. The Benefit Fraud Inspectorate are just about to start an inspection of Jobcentre Plus on its relationship with local authorities which will be completed by the autumn, speaking from memory. We shall then be able to update these findings. We have not simply done nothing in relation to all of this. We have sought to transform the relationship we have with local authorities.

Mr. Gerry Steinberg (City of Durham): One of the points I took from the report which I really thought hit you in the face was the point that Richard Bacon made and the Chairman. We sat here five years ago - you personally did not, but I certainly did - and we talked about housing benefit and we discussed housing benefit, but in the report it appears that nothing has progressed, or very little, in terms of measurement of what is going on in those five years. The Chairman clearly showed you in Appendix 2 that the department seems to have taken absolutely no notice of the Committee at all. One has to say that you are patently the only department which takes no notice of this Committee. Not you personally; your department seems to be one of the very few departments which does not take any notice of what this Committee says.

Sir Richard Mottram: I am the permanent secretary of this department and I shall take notice of what this Committee says. Actually I think you are being rather too harsh on us, in the sense that, if you go back to what was said and you look at, and we could itemise this for you, all the steps we have taken subsequently to change the basis on which we are seeking to work with local authorities in relation to housing benefit, you could say we were a bit slow and so on, but we could show to you that we have absolutely taken all the lessons on board.

Mr. Gerry Steinberg (City of Durham): The point Richard Bacon made was that not only did you not improve the situation, but in paragraph 3.13 you made it more difficult to understand. "The Department's subsequent changes, however, have made the Housing Benefit scheme increasingly complex for local authorities and difficult to administer".

Mr Clark: It is worth saying that since then was the major announcement last autumn to look quite fundamentally at the way housing benefit is administered, some of the changes Richard mentioned around piloting a massively simpler scheme of standard rate allowances, ending the treadmill of benefit periods which causes a huge administrative burden within housing benefit. We have moved on issues like having a single claim form, which was one of the perennial concerns within the housing benefit scheme and was certainly picked up by the Audit Commission's reports in this area. We have also made commitments to reduce the numbers of releases of regulations, break it down to two a year and so on. Yes, the Audit Commission made it's criticisms in the summer of last year, but an awful lot has happened since.

Mr. Gerry Steinberg (City of Durham): What would you say if I said to you that the fraud is so great that you catch people or make improvements by good luck rather than good management and frankly there is so much fraud going on you could not help but improve the situation from what it was in the past?

Mr Clark: The idea that we have introduced incentives to encourage local authorities just to get some fraud investigators out there is driven by a belief, yes, that they can.

Sir Richard Mottram: Look also at how we are working with local authorities to train their investigators. Then there is an issue over whether there are enough sanctions and prosecutions in relation to housing benefit fraud. Answer: there are not. We agree with you. We have set in train a whole set of things but a lot more progress needs to be made.

Mr. Gerry Steinberg (City of Durham): One of the worrying things in the report last time, which was incredible, was the number of local councillors and council officials who were actually involved in the fraud itself. Has that been put right now?

Sir Richard Mottram: I do not know whether we have data on that.

Mr Clark: I do not have data on that.

Mr. Gerry Steinberg (City of Durham): It was worrying at the time and I would hope something has been done about that. What I pulled out of this report, which was also very worrying, was the organised fraud by landlords and the collusion, presumably collusion with local authorities. What have you done about that?

Sir Richard Mottram: No, the collusion is with the tenants and we can describe that to you.

Mr Clark: If you want, I can say something about the types of fraud by landlords.

Mr. Gerry Steinberg (City of Durham): Yes.

Mr Clark: There are landlords who are renting out properties but who are on benefit themselves. You can get landlords creating fictitious claimants and claiming benefit for them. You can get landlords creating collusive tenancies and this does come up. They have a relative living with them and pretending that there is a rental agreement on which they can then claim benefit. Then you also get landlords who continue to claim the benefit or receive the benefit for a tenant who has moved on.

Sir Richard Mottram: We do not think that is in any way the most significant level of fraud.

Mr. Gerry Steinberg (City of Durham): One point I want to make, which I brought up with the Inland Revenue, is this living together business; the report says that something like one in 11 or 10% of fraudulent claims. What are you doing about that? For a start, the working families tax credit was one of the main frauds. It seems to me that it is so clear this is going on that something really has to be done about that. You talk about the Saturday marriage and we make it so easy now for people to live together, but if they are going to live together, they are going to have to pay the same taxes and get the same benefits as those who tie the knot. What are we doing about that?

Mr Fisher: In a sense the sanctity of marriage is not the point. The benefit system means that we treat people living together -

Mr. Gerry Steinberg (City of Durham): I am well aware of that.

Mr Fisher: The only way to deal with it is with a targeted system of home visits, visiting these people in their own homes and attempting to prove or disprove whether they are living together as man and wife. That is the issue. What we are trying to refine is a system for targeting those visits more effectively on those people.

Mr. Gerry Steinberg (City of Durham): You do not have to prove whether they are man and wife.

Sir Richard Mottram: No, we have to prove whether they are living together.

Mr. Gerry Steinberg (City of Durham): As long as two people are living in a house together, then they are classed as living together. You do not have to prove sexual relations or anything like that.

Sir Richard Mottram: Correct.

Mr. Gerry Steinberg (City of Durham): What is the difficulty then?

Mr Fisher: It is more than just living under the same roof. There has to be an element of relationship between them for these rules to apply. Unfortunately it is not quite as simple as two people living in the same house. You have to prove there is a degree of relationship of a financial or other sort which exists between them as a form of dependency one on the other. It is a very complicated area.

Mr Clark: With extensive case law covering what the definition of living together for these purposes are.

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Mr. Gerry Steinberg (City of Durham): We have been meeting for two and a half hours and nobody has actually congratulated you on the success you have had and it would be churlish not to say that you have detected something like £230 million of fraud.

Sir Richard Mottram: Yes, we certainly have reduced overpayments very substantially.

Mr. Gerry Steinberg (City of Durham): On the other hand, you have invested £250 million into housing benefit.

Sir Richard Mottram: Yes, we are intending to.

Mr. Gerry Steinberg (City of Durham): When will we actually see a profit?

Sir Richard Mottram: We will not see a profit, because that is not the calculation. We will offer you reasonable confidence that we will get our money back for the housing benefit changes.

Mr. Gerry Steinberg (City of Durham): We will get £250 million back.

Sir Richard Mottram: We will go away and do a little calculation.

Mr. Gerry Steinberg (City of Durham): I am interested to know which you find the most difficult benefit or entitlement to enforce.

Sir Richard Mottram: The ones which are means tested, which require people to declare their personal conduct, are the most difficult.

Mr. Gerry Steinberg (City of Durham): Which one in particular?

Sir Richard Mottram: Income support is very difficult. The biggest level of fraud is actually on jobseeker's allowance as a percentage, because that requires people to be honest about whether they are working as well as claiming. That is the biggest proportionate percentage fraud and although it is difficult to know for statistical reasons, it is the one which is moving least well in the direction we want. It is jobseeker's allowance which wins this rather appalling competition.