Government defeated as Lords demand tougher crackdown on benefit fraud

The Government has suffered a narrow defeat in the House of Lords as peers voted for tougher action on fraud involving public money.

The upper chamber backed by 200 votes to 194, majority six, a Tory bid to give extra powers to the Public Sector Fraud Authority (PSFA) to investigate suspected fraud.

This amendment to the Public Authorities (Fraud, Error and Recovery) Bill allows the PSFA to undertake proactive investigations or recovery operations without requiring a prior request from the body suspected of being scammed.

The Bill had previously only allowed the PSFA to investigate or take enforcement action on suspected fraud against a public authority if invited to do so by that body.

Shadow Cabinet Office minister Baroness Finn said this is an “extraordinary limitation to place on an organisation whose very purpose it is to root out fraud across government”.

She argued that this would create a PSFA that is “empowered and yet toothless”, as it would be “hamstrung” by this restriction, and branded it a “watchdog told to bark only when asked”.

Tabling her amendment, Lady Finn said: “To rely on departments or agencies to invite in the PSFA to look at themselves or their work is, frankly, far too weak.

“There are obvious disincentives: the reputational risk, the potential embarrassment and the possibility of drawing attention to failings that might otherwise have gone unnoticed…

“Assuming that departments will voluntarily expose their own shortcomings is a triumph of hope over experience.

“If we are serious about protecting the taxpayer, then the PSFA must be able to act proactively, to initiate investigation where credible concerns arise, not to wait passively for a polite invitation that may never come.”

She argued that her amendment is “closing a glaring loophole, one that every complacent official and every fraudster will otherwise see coming a mile off”.

Responding, Labour frontbencher Baroness Anderson of Stoke-on-Trent said: “The Government’s intention is that the PSFA offers a public sector fraud service, collaborating with public authorities which have been attacked by fraudsters to take action to investigate, enforce and recover the funds.

“Collaboration is vital in the Government’s fight against fraud.”

She added that the powers given in the amendment are “not necessary” because there is a “moral and public pressure for something to be done”, and argued that the PSFA is “already working”.

Despite her assurances, peers backed the amendment, including 163 Tories, 24 crossbenchers and even one Labour peer.

The change to the Bill will be considered by MPs when the it returns to the Commons in so-called “ping-pong”, when legislation is batted between the two Houses until an agreement is reached.

The draft law seeks to curb multibillion-pound benefit fraud and includes allowing the Department for Work and Pensions (DWP) to recover money directly from fraudsters’ bank accounts.

It would also allow the DWP to have the power to obtain bank statements from people they believe have enough cash to pay back welfare debts but are refusing to do so.

Courts could also suspend fraudster’s driving licences after an application by the DWP if they owe welfare debts of more than £1,000 and have ignored repeated requests to pay them back.

Latest official data has revealed £9.5 billion is estimated to have been overpaid in benefits in the year to the end of March, with fraud accounting for most of that sum.

Later, the Government saw off a further bid by the Tory frontbench to amend the Bill, this time to establish clear fraud risk management duties for all public authorities that oversee spending programmes of more than £100 million per year.

Peers rejected this by 186 votes to 139, majority 47.

Lady Finn said her amendment sought to ensure that public authorities do not “hide behind” the PSFA and “pass the buck” of managing fraud risk entirely on to them.

She argued that it is important to “build a culture of counter-fraud across the public sector, one in which every department, every agency and every accounting officer, takes personal and institutional responsibility for preventing fraud at source”.

However, Lady Anderson said the amendment is “not necessary” because it is already a requirement for major new areas of public spending to have a fraud risk assessment, which are then scrutinised by the PSFA.

She added that the PSFA also holds government departments to account more broadly on their performance and capability.