Fraud and Error in Benefits Expenditure (HC 447-i) Public Accounts Committee 9 Mar 2005

Evidence given by Sir Richard Mottram KCB, Permanent Secretary and Mr John Codling, Group Finance Director, Department of Work and Pensions.

Q23 Mr. Gerry Steinberg (City of Durham): When they brought in the new way of paying benefits, one of the selling points so far as I was concerned to my constituents was that it would reduce fraud in terms of the giro book. We were told by direct debit this would reduce fraud. What evidence is there now to show it has reduced fraud? Is there any evidence?

Sir Richard Mottram: I do not know whether we have yet got the evidence in detail, but what it will certainly do is, since we have now eliminated order books, instrument payment fraud will, by definition, no longer be possible.

Q24 Mr. Gerry Steinberg (City of Durham): I asked if it had reduced fraud.

Sir Richard Mottram: That is the fraud.

Q25 Mr. Gerry Steinberg (City of Durham): So give me the figures for it.

Sir Richard Mottram: The figure is 80 million.

Q26 Mr. Gerry Steinberg (City of Durham): So we save £80 million this year because of the direct debit savings.

Sir Richard Mottram: This year has been a transition year because we obviously have order books, and I do not have the figures with me.

Q27 Mr. Gerry Steinberg (City of Durham): What would you expect it to save?

Sir Richard Mottram: In the current year?

Q28 Mr. Gerry Steinberg (City of Durham): In the future.

Sir Richard Mottram: It will save the whole of instrument payment fraud because there will no longer be a possibility.

Q29 Mr. Gerry Steinberg (City of Durham): Yes, but what is that?

Sir Richard Mottram: It is 80 million.

Q30 Mr. Gerry Steinberg (City of Durham): The maximum amount would be £80 million a year it would save. Would it be more than that?

Mr Codling: Our latest estimate of the savings deriving from the new method of payments in terms of benefit savings in net terms is £45 million, and it will be £60 million on administrative savings. That is in the current year. These figures rise significantly in the future. They are rising to £60 million benefit savings and in excess of £400 million per annum on method of payment savings before offsetting the cost of the Post Office card account.

The Committee suspended from 3.50 p.m. to 3.57 p.m. for a division in the House

Q31 Mr. Gerry Steinberg (City of Durham): How many customers now pay by direct debit?

Sir Richard Mottram: About 22 million.

Q32 Mr. Gerry Steinberg (City of Durham): Have you reached your target?

Sir Richard Mottram: We have indeed reached the target. The total that pay by direct debit is 25,576,000 as at 4 March.

Q33 Mr. Gerry Steinberg (City of Durham): That is the target.

Sir Richard Mottram: The public services agreement target was to have 85% of our customers paid by direct debit. We have more than achieved that, but in fact for financial and customer service reasons 85% is not our aspiration; we want much higher than that.

Q34 Mr. Gerry Steinberg (City of Durham): Clearly fraud and error is a major drain on the resources of this country, and the taxpayer pays for it at the end of the day. It appears to be going down, but it is going down very slowly. I had understood it was 3 million and we are now told it is 2.5 million.

Sir Richard Mottram: No, you are not told it is 2.5 million.

Q35 Mr. Gerry Steinberg (City of Durham): Where the hell is that half a million?

Sir Richard Mottram: Because the -----

Mr. Gerry Steinberg (City of Durham): It does not matter.

Q36 Chairman: I think this is quite important and we ought to tease this out. We are still having difficulty in getting to the bottom of this, so explain to us.

Sir Richard Mottram: The position is that in 2000 and 2001 the broad estimate rounded to the nearest half a billion was 3 billion, and that was roughly £2 billion worth of fraud and £1 billion worth of error. Our latest estimates - and I am not announcing anything new today, but I do not want to go back over all that again - are 3 billion rounded to the nearest half billion, but the fraud element has substantially reduced, so it is now roughly speaking 1.5 billion/1.5 billion. The difficulty in all of this is that you might say to me as your next question, "although fraud has gone down, the error has gone down by exactly the same amount" and the answer is it has not; but because we have rounded the total estimate in such a broad-brush way, it makes it very complicated. Each of the estimates was rounded to the nearest half billion. If you now did exactly the same thing you would find it is still apparently 3 billion, but the division is different. If, however, we were allowed to un-round these numbers, you would see some progress.

Mr. Gerry Steinberg (City of Durham): That has answered that well. Now that we understand ...

Chairman: Your answers are getting clearer.

Q37 Mr. Gerry Steinberg (City of Durham): We still have £3 billion of fraud and error. That is an enormous amount of money, Sir Richard.

Sir Richard Mottram: It is indeed.

Q38 Mr. Gerry Steinberg (City of Durham): When are you going to reduce it considerably? When are you going to come to this Committee and say, "gentlemen and ladies, I can now report to you that it is down to under £1 billion, a very small amount of £1 billion? When can we expect that?

Sir Richard Mottram: Not for a number of years.

Q39 Mr. Gerry Steinberg (City of Durham): How many years?

Sir Richard Mottram: I am not in a position to say.

Q40 Mr. Gerry Steinberg (City of Durham): I have been on this Committee for five years and it has hardly come down at all in five years, has it, really?

Sir Richard Mottram: The problem we have here - to get myself back into the same morass - if you look at the individual benefits that we are measuring continuously that are referred to in the report before us, you can see that we are definitely making substantial progress.

Q41 Mr. Gerry Steinberg (City of Durham): What would you say was your target?

Sir Richard Mottram: I do not have one, other than the PSA targets I have in relation to individual benefits, which I could describe to you. I have targets in relation to income support, Job Seeker's allowance, pension credit and housing benefit.

Q42 Mr. Gerry Steinberg (City of Durham): If you add them all up, surely you come to a single target.

Sir Richard Mottram: No, because there are a number of benefits that are not covered by these targets.

Q43 Mr. Gerry Steinberg (City of Durham): When do you hope those targets will be achieved?

Sir Richard Mottram: We have targets in relation to income support and Job Seeker's allowance for 2006, and I expect we will achieve our target. We are ahead of schedule on that. We have targets in relation to pension credit for 2006 and I expect us to achieve that target. We have a target for housing benefit, reduction of 25%. It is still an open question whether we will achieve that target. I expect to come back to this Committee in 2006, if I am still around, and say, "we have made substantial progress in relation to ...."

Q44 Mr. Gerry Steinberg (City of Durham): If I had been the minister, I would have said, "Sir Richard, clearly you are not meeting your targets ...."

Sir Richard Mottram: I am meeting my targets.

Q45 Mr. Gerry Steinberg (City of Durham): Well, clearly you are not reducing it enough, Sir Richard. "I will give you two years, and if you do not reduce it by 50% I will sack you and all the civil servants involved in this". Do you think you would achieve it then?

Sir Richard Mottram: I have one target which is to reduce something by 50%. This is one of the many things which my ministers ask me to do, and I think they evaluate my performance on a broader range than just this one.

Q46 Mr. Gerry Steinberg (City of Durham): That might be the case, but as far as I can see, it does not matter whether you fail in anything else, £3 billion a year could build a hell of a lot of hospitals and schools, and put a lot of money into the Health Service other than hospitals, and we could build a lot of roads. So if you fail at everything else and manage to get this down to nothing, I would regard that as a huge success. Not only would I make you a Sir, but I would make you a Lord as well!

Sir Richard Mottram: You and I have discussed this before.

Q47 Mr. Gerry Steinberg (City of Durham): What, making you a Lord?

Sir Richard Mottram: Yes! The serious point I would make is that there is no possibility of reducing fraud to nil while we have the framework of benefits we have at the moment. There is no organisation with the scale of responsibilities that we have that could have error rates that were zero. We could certainly reduce both the fraud and the error, and we could describe to the Committee how we plan to do that. We have to see these numbers in the context of the very large number of the total benefit expenditure of the country, which, in the bits we are talking about here are £105 billion. This is a lot of money. But I am not sitting here trying to justify to you that we estimate that £3 billion of it is covered by fraud and error.

Q48 Mr. Gerry Steinberg (City of Durham): When I read the report I got the impression that you did not even know whether that £3 billion was an accurate figure or not. It could be more, could it not?

Sir Richard Mottram: It could be more, but I do not think it is more.

Q49 Mr. Gerry Steinberg (City of Durham): How do you know?

Sir Richard Mottram: As I say, we are continuously measuring -----

Q50 Mr. Gerry Steinberg (City of Durham): As the Chairman said, you are working from records that are over six years old anyway.

Q51 Sir Richard Mottram: Only in some cases. Perhaps I did not explain this clearly before. Those benefits that are most susceptible to fraud and error are principally income support, Job Seeker's allowance, pension credit and housing benefit, and we are measuring fraud and error on those benefits continuously, on a huge basis which the Comptroller and Auditor General has previously remarked is probably the most sophisticated and systematic approach of any country he knows about. The next biggest benefit that we have is retirement pension, which, for various reasons - it is a massive amount of money but it is not susceptible to fraud and error in the same way as these income-related benefits. You then come to disability living allowance, where we have a review in hand, and then there are other benefits like incapacity benefits. I agree that we should be periodically looking at those so that we can give the Committee confidence.

Q52 Mr. Gerry Steinberg (City of Durham): You are an expert, are you not, because you talk so that I cannot get any more questions in! When Mr Hanson was here a few weeks ago, he told us that they had lost a number of papers.

Sir Richard Mottram: Correct.

Q53 Mr. Gerry Steinberg (City of Durham): But that this was only a blip. But then we read in the report that you have lost a load of papers.

Sir Richard Mottram: That is because we are part of the same organisation.

Q54 Mr. Gerry Steinberg (City of Durham): He said it was just a social fund. This is the -----

Sir Richard Mottram: I think he was being examined on the social fund.

Q55 Mr. Gerry Steinberg (City of Durham): I may be wrong, but I am quite certain that when he was asked the question he said, "Do not worry, it is only the social fund where we have lost papers." You have lost medical assessment papers of individuals, so you do not even know whether the people are entitled to the benefit they are getting because you have lost their medical reports.

Sir Richard Mottram: At the margin we certainly do lose papers. As I explained, in the case that arises here where apparently -----

Q56 Mr. Gerry Steinberg (City of Durham): Incapacity benefit. How can you pay incapacity benefit if you do not know whether they are ill or not?

Sir Richard Mottram: The reason I can pay them is that I do know they are ill because I do have the papers. What we both did here was ensure the National Audit Office could have access to them within the timeframe they wanted. I quite recognise that that raised issues about how we liaise with the National Audit Office to make sure they can get their hands on the papers they want, when they want them. I would add that in the case of the papers referred to here, the National Audit Office were looking again at the set of papers we had already looked at, so we had taken a sample of incapacity benefit papers for our own purposes to satisfy ourselves that we were paying correctly; and then quite rightly the National Audit Office come along and they take a smaller sample to make sure they have cognisance of what we are saying; and we should have been able to find those papers. I can assure you, we are thinking about how we can make sure we have that in the future.

Mr Codling: We have improved our systems and the recovery rate is now at the rate of only 1.3% not being found.

Q57 Mr. Gerry Steinberg (City of Durham): That is great! I am being facetious. In relation to £615 million worth of error or fraud in housing benefit, is that because local authorities could not care less - it is not their money?

Sir Richard Mottram: Not in the least. The way in which the benefit is framed requires people to be honest about their circumstances, including their income and so on, and it is a very complicated benefit to be administered.

Q58 Mr. Gerry Steinberg (City of Durham): Could a system not be brought in where local authorities are penalised if they are found to be incompetent in paying out housing benefit?

Sir Richard Mottram: We encourage authorities to perform better, and we can see plenty of evidence that is encouraging them to perform better. Helping them to inform better, incentivising them to take action against fraud, for example, is better than berating them or punishing them, but they are also inspecting them, and the results of those inspections are taken very seriously by us and by them.

Q59 Mr. Gerry Steinberg (City of Durham): Two things come out of this. If you and your officials were told that you had two years to put it right, or else; or local authorities had to do it right, or else, then I bet we would get results.

Sir Richard Mottram: We are getting results already. This is not the only thing we are responsible for. We are responsible for getting people into work; we are responsible for paying the money; and we are responsible for making various efficiency savings that the Government want us to make. We have to try and make the best of all those things together, and that is what my staff do.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.