My Lords, I confirm that, in my view, the order is compatible with the European Convention on Human Rights.
Administrative penalties are financial penalties that may be offered to people in certain cases as an alternative to prosecution for benefit fraud or attempted benefit fraud. The conditions for when an administrative penalty may be offered and the amount of penalty to be paid are set out in Section 115A of the Social Security Administration Act 1992. Currently, the amount of
administrative penalty that may be offered is £350 or 50% of a recoverable benefit overpayment, whichever is the greater, subject to a maximum penalty of £2,000. This order provides for a new maximum amount of administrative penalty of £5,000 which can be offered in cases where prosecution is deemed not to be appropriate in the first instance.
This means that in the future, depending on the size of the overpayment, an administrative penalty of up to £5,000 may be given. This is in addition to recovering the overpayment and applying a four-week loss of benefit penalty. For example, under the proposed order, where there is a benefit overpayment of £8,000 and there are grounds for instituting proceedings for a benefit-related offence, a penalty of £4,000 could be offered. If accepted, this would need to be repaid on top of the overpaid benefits. Currently, the maximum penalty restriction that could be applied in that example is £2,000. As noble Lords will see, the new maximum penalty of £5,000 can therefore be applied only to cases where the recoverable overpayment is £10,000 or more, so we are not talking about a £500 overpayment attracting a £5,000 penalty; that simply cannot happen. The increased maximum amount of administrative penalty could be applied only in cases where the act or omission that gives rise to grounds for instituting proceedings for the offence to which the penalty relates occurs on or after the coming into force of the order. In other words, it is prospective and not retrospective.
When the current maximum amount of administrative penalty of £2,000 was set in the Welfare Reform Act 2012, we knew that it was important to keep the amount under review. Since then, too many people still continue to ignore warnings and flout the rules to steal from the benefit system. The monetary level of benefit fraud, which is currently estimated to be around £1.2 billion, is unacceptable and unaffordable. In one year alone, there were more than 29,000 penalties for benefit fraud, including convictions. People must do the right thing and ensure that their benefit claims are correct. Clearly, a significant number of people are still not doing this and deliberately defrauding the benefit system. This is why we are taking action now by setting the maximum administrative penalty at £5,000. This will act as a better deterrent and highlight the significant financial consequences which can result from defrauding the benefit system.
I recognise that if the maximum penalty amount were set excessively high, there would be a risk that no one would be prepared to accept it or alternatively they might rather risk being prosecuted for their actions. I come back to the point that this is consensual in the sense that a person does not have to accept the administrative penalty. It is not our intention to prosecute people routinely for lower-level benefit fraud, which would result in them incurring a criminal record that may harm their future job prospects. That would be in nobody’s interests. At the same time, we believe that it is right that where a person incurs a higher overpayment, where prosecution is not being considered in the first instance, the amount of the penalty given should also be higher. For these reasons, I consider £5,000 strikes the right balance.
The department’s general policy is to offer administrative penalties as an alternative to prosecution in fraud cases deemed not to be so serious that prosecution should be considered in the first instance and where there are no aggravating features present. The driver for raising the maximum amount of administrative penalty is further to strengthen the range of measures we have to address and tackle benefit fraud. It also allows for greater flexibility, offering tougher but proportionate financial punishments where prosecution is not considered in the first instance.
Let me reassure noble Lords that we will continue to consider the individual circumstances of a case when deciding whether to offer a penalty or to refer a case for prosecution. In addition, administrative penalties carry their own safeguards. Where a person accepts the offer, they have a cooling-off period of 14 days in which they can change their minds. This ensures that they do not feel pressured into accepting the penalty.
If the offer of an administrative penalty is refused, the case would then be referred for prosecution. The department also has a well established debt recovery process for the recovery of administrative penalties, which can be recovered from benefit payments, deduction from earnings or through other means if appropriate. If evidence emerges that the penalty does not operate as intended, we will look closely at that.
The order aims to change claimants’ behaviour and deter people from committing benefit fraud. It also ensures that the penalties available remain appropriate to address the serious and costly nature of benefit fraud. In conclusion, losing £1.2 billion a year through fraud shows that far too many fraudsters continue to steal from the benefit system. Such offensive behaviour has no place in today’s society and should not be tolerated. The order before the Committee today and its purpose is straightforward. To avoid risk of an administrative penalty, claimants should just be truthful and accurate when making claims and tell the department promptly when their circumstances change. The £5,000 maximum limit for an administrative penalty reminds claimants of the need to do this, and where they do not it reflects the serious nature of benefit fraud. I seek noble Lords’ support for the order today, and I commend it to the Committee.
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