Oral evidence: Fraud and error in Housing Benefit, HC 706
Oral evidence, 29 October 2014.
Witnesses
Robert Devereux, Permanent Secretary, Department of Work and Pensions, Steve Buckingham, Senior Responsible Owner for Housing Benefit Fraud and Error, Department for Work and Pensions, and Mike Driver, Director General (Finance), Department for Work and Pensions, gave evidence.
Chair
I will start with a general question and we will come on to the incentives scheme, which is the key issue that we need to focus on. My general question comes out of the evidence and my own experience in my constituency. There is a growth in the number of people claiming housing benefit for all sorts of reasons, whichever figures you look at, whether they are NHS figures or other figures. Certainly my own figures tell me that. There is going to be less money available for it because of the financial cuts that you have to implement to meet deficit reduction. You have a record where the figures for fraud and error are not moving in the right direction. How are you going to have a system that will meet the Government’s objective of reducing fraud and error? It is already creaking at the edges and it will have increased demand. How are you going to try to square that circle, or is it unsquarable?
Robert Devereux
I don’t think it is unsquarable, but I think it is difficult. You are right that there is a small growth in the overall housing benefit caseload and there is quite a rapid growth in the caseload of those people in work. It is those people in work who fundamentally have the earnings issue, which we will spend some time on this afternoon. Across the piece for the Department, and as the Report records, we have a growth in fraud and error in housing benefit that is pretty much offset by a reduction in fraud and error for other benefits. So it is not as if the constraints on public spending are causing us not to be able to do it right across the piece. What I hope we will talk about this afternoon is those areas that are to do with earnings: if you think about the losses that we are recording which local government does not then go back on and recollect, by far the largest is earnings—they come in two or three big buckets. At whatever point you want to talk about it, we should have a conversation about the step change that is possible in a world in which the Revenue is now collecting, month after month, every single person’s earnings and reporting it to them. The whole world of PAYE-related earnings suddenly becomes a vehicle for Government, in a joined-up fashion, to be able to tackle a problem that was previously impossible to tackle. So this is not related to reductions in total spending and costs of administration; this is a big step change in what is possible.
Chair
I understand that. The national federation figures I have show that the number of households in work that are claiming housing benefit—I accept that’s a segment—has doubled from 11% in November 2008 to 22% in August 2014. That probably reflects what you said within the wider context. The system is creaking. Are those figures wrong?
Robert Devereux
You are quoting percentage make-up of the case load. The actual case load working age standards in 2010 was 1 million and it is now 1.3 million. It is up 20% over three or four years in actual numbers. Some of the other lines are decreasing, for example, passported pension housing benefit is going down, so the percentage that the working age appears to be taking seems to be growing but that is not the absolute case load.
Chair
Okay, but let’s stick to that. This is a guess from talking to people in my constituency: when it is claimant error, it is because of the nature of the work that they are doing. More people are on zero-hours contracts so they do not know what they are earning and there is not that certainty of earnings, which could lead to overpayment. That is one thing. We did a Revenue thing earlier this week and we saw with the tax take that there is growth in self-employment but not megabucks in earnings, so people are still entitled to housing benefit. The nature of the people coming through your housing benefit door and being overpaid because their circumstances change so rapidly, are so unpredictable or they are self-employed is changing. Is the system you have in place appropriate in that new context?
Robert Devereux
We have done some quite deep analytical work about the nature of the overpayments, how long they last and what is causing them, and it is clear that over many years—this is the key thing that the Committee needs to clock—people’s earnings in the real economy move around quite a lot. We have a system of rules and of earnings moving around. The second thing you need to know is that these errors rapidly self-correct in many cases because the claimant calls two or three weeks later and says, “By the way, my earnings have changed.” That is a fairly persistent problem over time; it is not simply the advent of a potential growth in zero-hours contracts that has caused the problem. You might hypothesise that that makes some of it slightly more difficult, but the underlying problem is that people’s wages change frequently and we are running a system in which we are relying on them to tell us they have changed, until such time as you harness the power that we now have through the Revenue to know what their earnings are before they know themselves.
Chair
So you are quite confident. People’s earnings change and they are maybe going to change more with a growth in this client group; the people who claim housing benefit will be disproportionately zero-hours-contract sort of people, I would have thought.
Robert Devereux
To be honest, it is not a question of whether they know ex ante what they are earning. The issue is whether they have reported what they have earned when they have earned something; that then derives their housing benefit. You are correctly hypothesising that some people will be less able to know what it might be in advance, but we do not want to know what it is in advance; we want to know what it was when they earned it. As long as they are on their toes and tell us what they earned, whether it was a regular or a zero-hours job, it is the same problem for the housing benefit system. It does not make it any worse.
Chair
That is where I think the system may not be appropriate to the changing nature of the way that people earn their money and therefore report to you. If the way they earn their money is so irregular, having a system that is built on expecting them to tell you just becomes really complicated. It would be a phone call every week to the local office to say, “Last week I did so many hours so I earned that.” Is the system fit for purpose?
Robert Devereux
We will be back here in a month talking about universal credit. You know that, by design, universal credit payments are not made until we have already banked the earnings data that has come from the Revenue. We are not asking anybody what their earned income is to determine their universal credit payment. We are taking the data and using it to do the computation, so this entire class of problem for all those people in PAYE income goes away by strategic design. When I talk about using the RTI data in a tactical, data-matching fashion, I am doing that after the fact, trying to ensure that we keep it right. But housing benefit is fundamentally a system where I am reliant on people telling me. For universal credit, the whole point of it—the reason why we have gone to such trouble to make this connection with HMRC—is to make sure that we define what you are due, based on data that I already hold. This will transform the system completely.
Chris Heaton-Harris
It will transform part of the system completely, because it transforms it for those for whom HMRC has PAYE data and so on coming through on a regular basis. That leaves a group of people out there who will have this continuing issue. They report their changes in income by phone or however at the moment, but if 75% or whatever pay by PAYE, does that not suggest that for the future you can concentrate on the remaining group to ensure that there is less error and fewer problems? How will we do that?
Robert Devereux
Two things are true. First of all, let us be pleased that we can answer two thirds of the biggest problem. On the estimates of how much is self-employment, I think the Revenue is at something like 15%; we think it is probably slightly more prevalent among benefit recipients, so let’s call it 30%. The thing that happens under universal credit that does not happen at the moment is that the interaction that we are having with them is on a monthly basis. So many of the things that we are trying to do include having a continuing relationship—even for those in work—in a way that tax credits don’t do at the moment. The interaction with those in work is to have, at least once a month, a prompt to say, “What are your earnings?” It is not a case of, “If you fancy, tell us; otherwise we will assume that nothing has happened.” We will be positively asking, month after month, “What did you earn?” That will be a new system.
Chris Heaton-Harris
Who will be asking that question? I thought that local authorities were responsible for policing the system, so will they be prompting once a month?
Robert Devereux
I was illustrating what will be true under the world of universal credit, which will be us. So given that I have got, on the face of it, a strategic solution coming along and given that I have got real time information that I can use tactically on the earned information, the question that you should be asking is: can I drag forward that regular contact with those who declare themselves to be self-employed in exactly the same way I intend to do with universal credit, but do it earlier? That seems to be a perfectly good thing for us to be exploring.
Chair
Mr Devereux, there is so much around the future world when universal credit will be in place, but can we deal with this issue in the current context? When universal credit comes in it will be a different world. We are already getting RTI in, so it is fair enough to bring that in, but we want this money now. Universal credit, if you are lucky, will be 2017, but if you are being realistic you are probably talking about a long time after that, so let’s deal with it in that climate. The Report says that you will not meet your target. Is the system fit for the purpose of meeting the target? The Report says you will not meet the target that, presumably, you agreed with Treasury Ministers when you had your settlement. Why not, and what are you going to do about it?
Robert Devereux
I am sorry; you are talking about the overall target for fraud and error, so we have gone beyond housing benefit now—is that right?
Chair
We are here talking about—help me, Max.
Max Tse
It is the 1.7% target.
Chris Heaton-Harris
That is for all benefits. You have set the target of reducing fraud and error from 2% to 1.7%. As housing benefit is an area where there is more error than most other benefits, what is the target for housing benefit?
Chair
So take those two questions.
Robert Devereux
Okay. At the risk of bringing one fact to the table first, it is true that gross losses on housing benefit are higher than on other things: 5.8%. As the Report says, so much of this is to do with earnings and so much of this is ultimately declared by claimants that local authorities collect most of it back again. So the net position, in terms of the taxpayer’s overall losses, is that housing benefit is not the most significant area of loss; that is actually pension credit. The Report records net losses on housing benefit of 3.5%. The measurement changes that we have agreed with the National Audit Office would make that about 3.1%. Don’t get me wrong: 3.1% is still far too much. But in terms of whether it is the worst thing, it is the worst gross, but the very nature of earnings and the fact that most of it comes back to us means that actually we have got quite a bit of it under some control.
Chris Heaton-Harris
That is a completely fair point. You have a target for overall benefits, you have obviously identified how you can measure it and you have agreed on the 3.1%. Where would you like it to be in a year’s time?
Robert Devereux
I think the answer to that is that we have assessed a number of interventions as being worth a certain amount to get us to 1.7% rather than trying to then compute, item by item, what that does to individual benefits. Maybe Mike can add something.
Mike Driver
Our ambition is still to achieve the 1.7% target at the end of 2014-15. We have a series of measures in place, including, as Robert has alluded to, significant use of real time information, both in the DWP benefits system and the housing benefits system that is administered for us by local authorities. The NAO and the Comptroller and Auditor General confirmed that in their last set of accounts. He doubts that we will achieve the 1.7%, but we are working towards that and I think we will come close to, or potentially achieve, that target.
Stephen Phillips
Gentlemen, I want to talk about the incentive system and the subsidy. Who is responsible for it and can answer questions about it?
Robert Devereux
I am.
Stephen Phillips
Right. How has it been designed? Is it designed by economists in the Department?
Robert Devereux
Is it designed by economists? It has been around for quite a long time so I am not sure I know exactly where it started from, but it has a basic sense in it, which my colleagues in local authorities were talking about, that is—
Stephen Phillips
Let me ask a different question; when was it last looked at to see whether it was working?
Robert Devereux
I cannot recall when it was last reviewed.
Stephen Phillips
Has it been looked at within the past year? The past two years? The past five years? If you can’t say, that is fine—you’ll have to write to us—but what is the general picture?
Robert Devereux
I don’t think I know of a formal review of it. If I can just go back to what my colleagues were saying earlier, you encouraged them to say that the system was unfit for purpose because it was trying to do two things simultaneously. When pressed about the conversation around the water cooler, where they deliberately—
Stephen Phillips
I heard the evidence as well, Mr Devereux. You are here to answer my questions, if you don’t mind. You accept that the incentive system points in two different directions.
Robert Devereux
Do I accept that? No, I don’t actually. What the incentive system is trying to do is two things, but I am not sure I do buy the idea that that is in two different directions. We have tried to create a system in the incentive system where I pay them less if they get it wrong. Separately from that, I allow them to keep every overpayment they have, so there are two things going on here. When a lot of the Report was written, it was all about the incentive system and not about the recovering of the overpayment.
Stephen Phillips
But the difficulty with that, as we see from paragraph 2.12, is that although you allow local authorities to keep 100% of the amount they recover, they only end up getting about two thirds, even including the 40% that the Department pays them. So there is still a disincentive to identify fraud and overpayment. That is right, isn’t it?
Robert Devereux
No; I think your arithmetic is wrong there.
Stephen Phillips
Help me out.
Robert Devereux
They declare an overpayment, let’s imagine it is £100, and as a consequence I am only going to pay them £40 of subsidy, not £100 of subsidy. So they are £60 out of pocket.
Stephen Phillips
So they get about two thirds themselves?
Robert Devereux
The overpayment is £100. They are collecting about two thirds of the overpayment. Two thirds of £100 is actually slightly north of £60, so they are actually net in profit.
Chair
If. If.
Robert Devereux
No. They are collecting 67% on average. So on average, the system puts them in money.
Stephen Phillips
Let us go back to paragraph 2.14 of the NAO’s Report. You would say, would you, that you disagree with the fact that the system is currently not working because it points in two different directions?
Robert Devereux
Well, the evidence would appear to be that they have sufficient incentive to collect back more money than I have taken away from them through the incentive, so it looks to me as if it has worked.
Stephen Phillips
My question to you, therefore, is: has the NAO got it completely wrong when it says that the incentive system is ineffective?
Robert Devereux
It is very easy to write a paragraph that says, “Of course, if it went one way it would mean one thing, if went another way it meant something else.” In practice, is this system delivering people’s attention to paying things properly the first time round? My colleagues seem to suggest it did indeed. Are they able to collect overpayments and are they collecting them? Yes, they are.
Meg Hillier
I am sorry, may I just check something? We had an example earlier of someone who had had an overpayment of £35,000 and had then gone abroad, so there was no prospect that the council would set about reclaiming that. Uncovering that and declaring that to you would have meant they would have been very much out of pocket, so there is no incentive for them to declare that.
Robert Devereux
Correct, so I am then giving you average numbers, which would obviously not include that £35,000, but by straight maths there must be lots of easy ones to collect back. To be really clear, most of the stuff that goes on in this benefit is not about complicated forensic investigation; it is about people who misreport things, late, tell the system, and we collect it back, typically by paying them less, or by collecting it. That is the nature of what is going on. I absolutely accept that some cases are difficult and leave local authorities out of pocket, but this is an instrument for dealing with many hundreds of local authorities.
Meg Hillier
But they are not out of pocket if they don’t find it.
Stephen Phillips
That’s really the next point. That is a very good example of an occasion on which it was not in the interests of Islington council to find that and tell you about it, but they did. What work has the Department done to identify the number of cases where local authorities are not identifying these difficult, irrecoverable amounts of wrongly paid housing benefit?
Robert Devereux
You will see in paragraph 2.27 that the NAO records us, delphicly, as “exploring a range of initiatives”. One thing on which we have been working with local authorities, and on which I am hoping that Ministers will be able to make an announcement shortly, is a scheme that goes precisely to the point you talk about. Given a baseline of overpayments identified at the moment, what system would have to be in place to secure further overpayments out of local authorities? That is currently being worked on. Unhappily, I am not in the position to go through it in detail, but we are trying to find a mechanism that would give some incentive to collect even more overpayments than they already do. As I said, they are already collecting a lot of overpayments—they are already, essentially, quids in on average—but this would give them an incentive, which would be good for them and good for me as the accounting officer.
Stephen Phillips
If I may go back to the summary of the NAO’s Report, paragraph 14 says that the scheme “encourages local authorities to process claims accurately and recover overpayments that are identified.” That seems to coincide with your evidence. However, it goes on: “It is not designed specifically to target fraud and claimant error and does not create strong incentives to detect overpayments after the claim has been awarded, which account for 90% of all Housing Benefit overpayments”—or, to put it another way, more than £1 billion annually. What steps is the Department taking to create the strong incentives to detect overpayments after the claim has been awarded that are currently lacking?
Robert Devereux
I am sorry, but I do not think that the £1 billion annually relates to the 90%.
Chair
Don’t worry about the figures; answer the question.
Stephen Phillips
Ignore the number I gave you.
Robert Devereux
I am sorry, could you ask the question again?
Stephen Phillips
Okay, the Report says that there are no “strong incentives to detect overpayments after the claim has been awarded”.
Robert Devereux
I have just explained that, as recorded by the NAO, we are in the process of sorting out a mechanism that will provide an even bigger incentive to find overpayments.
Stephen Phillips
Right. What are the features of that going to be?
Robert Devereux
It would be an incentive scheme, but short of Ministers finally agreeing and announcing it, I am afraid that I am not in a position to say right now.
Stephen Phillips
Right, so it must follow from that that you accept that there has been a problem in the past that the NAO has identified and that you are now moving to tackle.
Robert Devereux
Well, we have been running multiple different systems over different years and our conclusion is that this would be a timely time to do it.
Mike Driver
Just to build on what Robert has said, we do recognise that we need to incentivise local government in order to deal with the large amount of fraud and error in the system. There is also an issue with the subsidy arrangement, and we have committed to work with local government to review the subsidy arrangements—
Chair
What does that mean—put them up?
Mike Driver
No, that does not mean put them up; it means to review the subsidy arrangements to ensure that they work appropriately. One of the local authority colleagues talked about the way in which we have a differentiated approach for dealing with the subsidy in relation to official error, for example. So we will look at that part as well. It is worth saying that the subsidy arrangement is not there just to deal with the incentive arrangements for housing benefit. There is also a big financial control issue associated with this. We are paying out £25 billion through the subsidy arrangements to local government in terms of housing benefit. We need to ensure that we can demonstrate to you and Parliament that that is properly spent. Part of the subsidy arrangement is to do that. There is a classic three lines of defence model operating here. We as the Department set the legislative framework and the controls associated with that. It is for local government to operate those controls effectively. There is then a responsibility of a section 151 officer within local government to ensure that the system is properly administered. This comes to your question about where the incentive is to find fraud and error once a claim is in train. I would argue strongly that there is a responsibility on local government to ensure—
Stephen Phillips
We both know, Mr Driver, that auditors do not always pick things up.
Mike Driver
I am not talking about auditors. I am talking about the administration itself, which is the first line of defence. The second line of defence is the finance director, normally the section 151 officer. The third line of defence is the external auditors through the certification process. Part of that process is to ensure that at each stage we can ensure that there is proper accountability for public expenditure. So, there is that side of things; then there is the incentivisation, and part of what we do is incentivise people to get it right through the application of reduced amounts where there is fraud and error in the system. We recognise that we need to review the subsidy arrangements, and we also need to think about how we can better incentivise local government effectively.
Stephen Phillips
Thank you. Mr Devereux, when did you realise that you needed to review the subsidy arrangements because they were not working?
Robert Devereux
You will see from the time series of data in figure 3 on page 17—the data points for several years are there or thereabouts—that when you get to 2012-13, the data for that arrived in May 2013. That was the first point at which there was clear evidence that there was growth in earnings problems. It was in the December thereafter that the Government made an announcement in the autumn statement that we would be using—
Stephen Phillips
I am interested in the output that is going to come out of the Department shortly in relation to the change in the subsidy arrangements that you have been talking about. When did you identify the problem that has led to the output that you cannot tell me about? Was it before or after the NAO identified it?
Robert Devereux
It was before. I think it says clearly in one of the sentences, which I will not be able to find in a hurry, that the Department was well aware of the nature and scale of fraud and error issues.
Stephen Phillips
Moving on to a slightly different topic briefly—certification required by the subsidy regime—in paragraph 2.19, the NAO Report states, “Local authorities are not required to check—or provide evidence to local auditors—that claimants’ circumstances have remained the same.” That is right under the current regime, is it?
Robert Devereux
Yes. Picking up on what Mike said earlier, given that £23.5 billion passes from my Department to multiple authorities that in turn are paying claimants—
Stephen Phillips
Mr Devereux, forgive me, but I asked you a very simple question. Is what the NAO says there right?
Robert Devereux
Sorry, is what right?
Stephen Phillips
Is it right that “Local authorities are not required to check—or provide evidence to local auditors—that claimants’ circumstances have remained the same.”?
Robert Devereux
They are not.
Stephen Phillips
Why is that, given that we know from the introduction to the Report that this is the largest area for fraud and claimant error?
Robert Devereux
Because the certification process is there to make sure that local authorities are correctly reporting to me what they have actually done by way of making determinations on claimants. We are not asking the auditors at that point to go out and check with all the claimants. I am simply trying to make sure that when individual authorities—
Stephen Phillips
No, no, no—forgive me, Mr Devereux, but you are missing the point. That is not what this is about at all. Certification does not require local auditors to check that the circumstances of those who have made claims have remained the same.
Robert Devereux
I don’t think I am missing the point. The certification process is not the process by which I estimate whether there are degrees of overpayment in the system. I have my own statistical methods for identifying the sums and the analysis in the Report. This is the local government auditors checking that when a section 151 officer sends me a bill and says, “Mr Devereux, please would you send me £1 billion for housing benefits?” that has been properly constructed on the evidence available within the local authority.
Stephen Phillips
But it has not necessarily been properly constructed, because what is not being certified is that the claim is not a fraud or an error. If a sample of claims is taken and the auditor or certifying officer is not looking at whether the circumstances have remained the same under the certification regime, he is unable to properly certify to the Department that the local authority is doing what it is supposed to do.
Robert Devereux
Even if I were able—which, by the way, I am not—to measure fraud and error accurately at the local authority level, would you prefer me to say to each local authority, “The stock of fraud and error in your system is this high and I will take all that money off you under the subsidy arrangement”? I am guessing that that is not what local authorities want.
Stephen Phillips
It is not about what I would or would not prefer. It is about you providing answers to my questions so that this Committee can form a view as to whether public money is being properly spent.
Robert Devereux
Yes, but you are running a line of argument that somehow calls into question whether this is a sensible way of doing certification when the only alternative to this way of doing it would be to visit on local authorities the cost of the stock of fraud and error in the system. I am asserting to you that I think it is highly unlikely that they will want that.
Stephen Phillips
What I am asking you is why, as part of the certification process, you do not require the auditors to certify—
Robert Devereux
We are going round in circles. I am asking them to do it in order to organise the payments to local authorities who have already paid money out to claimants. Those are two different things.
Stephen Phillips
Right. It follows from that that local authorities are being certified by auditors as having paid out monies, some of which should not have been paid. Is that correct?
Chair
Everyone around you is saying yes.
Stephen Phillips
Mr Driver and Mr Buckingham are both nodding.
Mr Bacon
Nods do not go on the record.
Mike Driver
That is the £8 million in paragraph 2.19.
Robert Devereux
No, it is not that.
Chair
It is a very simple question. If this is important, should you not be collecting data on it? You could collect the data in a certification process. If it is important to the Government to cut it—they have set it as a Government priority—it does not follow that you cut the subsidy, but should you not be collecting the data to get a better understanding of the problem and then take appropriate action?
Robert Devereux
I am trying to check what data we think we are collecting. I am already collecting information—the National Audit Office has regarded it as top of the range and world class—about what is wrong with fraud and error in the system. We do not have a mechanism for reporting that at local authority level. Even if I asked the local auditor to go and do it, they would have to sample so many cases to get a robust number that it would simply not be a practical option.
Stephen Phillips
But they do not sample very many cases at all. We know that from the figures given in the NAO Report.
Robert Devereux
Yes. All I am trying to say back to you, Sir, is that in order to get a robust estimate of the actual amount of change going on in claimants’ lives, on which I could then base a subsidy regime, I would have to sample way more than it is credibly possible to do.
Stephen Phillips
So your evidence to the Committee is that there is a distinction, for the purpose of robust certification, between the number of files—examples—that they need to look at for the purposes of what is currently certified and the number they would need to look at if they were also certifying that there had been no alterations to the circumstances of a limited number of claimants within a set.
Robert Devereux
Absolutely.
Stephen Phillips
Why would those two data sets be different?
Robert Devereux
I am afraid that this is to do with the ability to sample complex populations and get robust answers. There is a lot of variation in our system. At the moment, we are running a system that is warranted by the NAO as being one of the best in the world to measure fraud and error. The amount of effort that that requires when replicated by the geography of every individual authority would simply be wildly disproportionate to the purposes it is serving.
Stephen Phillips
Okay. Had anyone thought about this before I raised these questions?
Robert Devereux
Yes. I used to be the fraud director in 1998 and I went through that then.
Stephen Phillips
Has there been some work in the Department to say, “It is not worth certifying that there have been no changes in the circumstances of individual claimants within the sets being looked at by the certifying officer”?
Robert Devereux
There has been work that has established exactly how much effort would be required to produce local area estimates of fraud and error that were worth the paper they were printed on. The answer is that it is way too much effort. This Committee will not see the value of understanding 300 authorities’ information.
Stephen Phillips
We are quite prepared to accept that, but I would like you to write to the Committee to explain the numbers and why that conclusion has been reached.
Robert Devereux
I will very happily write to you.
Chair
We think you are talking about over £1 billion of housing benefit fraud and error. If it costs a few million pounds to collect the data, that is not necessarily a bad investment.
Robert Devereux
Off the top of my head, I think the current measurement system is costing us low tens of millions to run—£20 million or £30 million—to get an estimate that is accurate across the country as a whole. Broadly, if you were to multiply that by 200 or 300, you would get an estimate that is accurate in Enfield. While I could mathematically do that, that is not the purpose of certification, and I do not know what marginal information gain on which decisions and systems could be operated would derive from that.
Chair
Max?
Max Tse
To clarify, that is probably for the whole measurement for all the benefits, rather than just housing benefit specifically.
Robert Devereux
Yes, it would, but it is the same.
Max Tse
But housing benefit would be the one that has the most local need for understanding of that issue.
Robert Devereux
It is the same degree of sampling, whatever goes on. Why don’t I write you a note? I have all this information because I reviewed it very recently.
Mr Bacon
You said the conclusion that you came to after this was that it was way too much effort and, by implication from what you just said, way too much cost. What is your number for what the cost would be to do this work?
Robert Devereux
That is the number that I have back in the office.
Mr Bacon
I am quite interested in it. You said low tens of millions; that could be £20 million or £30 million.
Robert Devereux
I was offering you my memory that the current system, which produces national estimates, costs about £20 million. I think it is about that. I will write to you to give you the right figure, but we have simultaneously tried to estimate what it would cost to do this at much lower levels of geography and we have computed a cost. I cannot remember it.
Mr Bacon
In a way that is robust?
Robert Devereux
In a way that is robust. It is very easy to go and find 10 cases in Enfield and says, “Gosh, look, 30% of them are wrong.”
Stephen Phillips
I don’t know why we are picking on Enfield, but let’s carry on. I am sure Mr Burrowes will not mind.
Robert Devereux
We could try Barking if you like.
Stephen Phillips
When the independent auditor turns up in Enfield to do the certification process, how long does it take?
Robert Devereux
I do not know. They do not do that many cases.
Stephen Phillips
If you do not know, do not speculate, that is fine. You can tell us that in writing as well.
Mike Driver
The auditor is not paid by the Department. This is part of the process that local government goes through in completing its accounts.
Stephen Phillips
It is paid indirectly, in a way, because you are providing administrative support through the subsidy, aren’t you?
Mike Driver
I accept that point, but the way in which the auditing process works is that it takes several months from the end of the accounting year to move from the subsidy to the certified approach.
Stephen Phillips
We are pressed for time and we are getting away from where I want to get to. You do not know how long it takes. How many files does the independent auditor ask for when he goes to Enfield?
Steve Buckingham
The certification process starts in the April following the previous financial year. The process is due to finish, signed off by the section 151 officer, by the end of November in the same year. That is the timeline. When the auditor goes into the local authority they have three main groups. They take 20 cases from each of those groups. If in one of those individual groups they find one case that is irregular they do a second set of sampling, which means that they then take 40 cases from that same group. In the very worst-case scenario, you would have three cases of—
Stephen Phillips
120 and another three lots of 120; is that right?
Steve Buckingham
No. You would have 60 across each set of three—
Stephen Phillips
Sorry, 60 and then 120.
Steve Buckingham
And then you would have 40, 40, 40 if all three found one irregular case.
Stephen Phillips
Let us just assume the bog-standard 120 when the auditor goes in. I don’t really understand why, when he is looking at those files, he can’t look to see whether their circumstances have changed.
Robert Devereux
Don’t get me wrong, we could all agree that we are asking him, in addition, to go and ring people up and see whether their circumstances are right. He is probably not trained to do that, by the way, but never mind. When he has done that we will have data on 120 cases in the whole population of that local authority. That will not produce a statistically robust estimate of anything at all. You can do it, but it will not mean anything. The information content will not be worth the money—which, as I have just said to Mr Bacon, I suspect we do not want to spend. Don’t get me wrong, I am not being cash constrained in thinking I do not want to spend this—if it was necessary, that is what we’d spend—but there is only any point in spending money to get information if the information has any merit.
Mr Burrowes
In terms of investigations, I understand from your website that the number of full-time equivalent fraud investigators has fallen between 2013 and March 2014 by about 4%. There has been a decrease in the number of cases referred to fraud investigation of about 14% in 2013-14 compared with 2012-13, while, as I understand it, the value of housing benefit over payments has increased by 9% and stands at around £1.38 billion. Those are the last quarter figures. Do you see any correlation of those figures?
Robert Devereux
Not directly, no. As I explained earlier, the increase in fraud and error is being driven by claimant error largely to do with earnings. This is not actually a matter to do with fraud investigators uncovering it. People are ringing up and telling us that they got it wrong and we correct it centrally. We are, indeed, ending up with fewer people, and fraud investigators have fewer front-line staff and fewer corporate staff. The organisation is currently running 33% real less cash than I had three years ago. So I am making choices. In that, I am trying to drive up the productivity of people. So knowing how many people I’ve got is not quite as interesting as whether they are being productive in the things they are doing. With referrals, for example, what I actually want to do is to have really good quality referrals. A reduction in referrals does not of itself mean that I am not getting really good quality ones; I may just have got rid of the less good ones.
Mr Burrowes
So the good quality ones, is that in terms of the value of those referrals?
Robert Devereux
It is do with whether, when the fraud investigator gets the referral, there is something substantial to go after. At one end of the spectrum of referrals somebody rings up and says, “I think my neighbour is doing something wrong—
Mr Burrowes
No, no, no. I am talking about those that lead to a sanction and some kind of disposal. You say “quality”. Is that quality where it is a large amount of money or quality that leads to a disposal of some sort?
Robert Devereux
Okay, we may be talking at cross purposes. When the fraud teams are trying to work out where best to deploy their effort they are trying to do two things: one, go after things that have large overpayments associated with them; and, secondly, make sure where they possibly can that they are getting significant criminal penalties for it because of the deterrent value, whatever the monetary value. They are making it clear that the Department is prepared to chase you down, find you and if necessary provide a criminal sanction.
Mr Burrowes
You may have heard the evidence from one of the local authorities in Kent talking about cautions and administrative penalties. That isn’t a performance measure for the Department. Perhaps it is not surprising that the number of cautions offered and accepted in 2013-14 dropped by around 27% compared with the last year. The administrative penalties offered and accepted have also dropped by around 16%. Would you say that is a deliberate strategic effect of how you said you wanted to go for the quality fruit?
Robert Devereux
Probably not. I am sorry but I am not familiar with those numbers.
Mr Burrowes
So why are they dropping? Why are administrative penalties dropping considerably? Why are cautions dropping considerably? You don’t know the answer to that? This is your press release on housing benefit recoveries and fraud national statistics. You must know about them and the fact they have dropped.
Chair
Who is the SRO?
Mr Burrowes
You must know these figures.
Steve Buckingham
I haven’t got them with me.
Mr Burrowes
But do you know about these figures? It doesn’t matter whether you have them with you. I have just prepared for this hearing today. This is your full-time occupation as an SRO to look at these figures. You must know about them.
Steve Buckingham
Yes.
Mr Burrowes
You do know about them?
Steve Buckingham
Not to the level of detail to answer those detailed questions.
Mr Burrowes
This is just a press release. It is not a big, detailed document. It is on your website.
Robert Devereux
I don’t think he does have the information.
Chair
What does it say? Tell us.
Mr Burrowes
It simply lists the number of cases. The number of cautions offered and accepted in 2013-14 has dropped significantly by around 27% compared with the previous year and the number of cases related to administrative penalties offered and accepted has also dropped by around 16%. It goes on. There has been a decrease of around 14% in the number of cases referred for fraud investigation—
Robert Devereux
So let us write to you. Because I have focused on the Report and not on that, we have not come prepared. I am sorry.
Mike Driver
Mr Burrowes, are those fraud figures for housing benefit that you are referring to?
Mr Burrowes
Yes. The local authority ones.
Steve Buckingham
Those data are collected from the local authority, which we then use, via the performance development teams, to discuss with the local authorities where we think they might like to focus their efforts.
Mr Burrowes
But it is a question about quality and quality cases. We heard earlier evidence from a local authority that they are doing all they can on administrative penalties but there is no real mark or incentive for them to focus on this area of work.
Robert Devereux
No. This comes slightly back to the potential organisation—we have a second tier of government here. We have given local authorities statutory duties to do some things under the legislation, so we are not working on the basis that everything that has to happen has got to have some financial incentive associated with it. I have already accepted, because I have told you I am going to do something about it, that we are going to put some more money in to help them provide more incentives for turning over other things.
Mr Burrowes
But we then have the single fraud service, and that is a direct Government initiative and approach. What do think the impact is going to be on these local authorities, in terms of their local investigation teams? What impact will it have on the statistics I have just given you?
Mike Driver
If we look at the fraud error and debt business case first of all, for relatively modest investment we expect, through to 2021-22, to collect an additional £559 million as a result of the creation of the single fraud investigation service.
Chair
How much out of housing benefit?
Mike Driver
About half of that will be housing benefit. In terms of the single fraud investigation service—and we have started rolling that out, and we have a timetable to do that—I think under the current arrangements, in the best situation, we have had two individuals, one from the Department and one from local government, potentially working on the same case, maybe slightly different aspects of that case. So I think that aligning the approach that we have, so that we can focus one individual using all the data that we have available to us, in order to create a more efficient fraud service, is useful. I think it is also worth noting that by aligning and centralising activity in a national organisation—because there may be criticism that we are centralising—we allow ourselves to deploy resource into areas where we find higher levels of fraud and error. So you may have picked up in the media we have been focusing on the 50 areas in the country where there are the highest levels of fraud and error, through a media campaign.
Mr Burrowes
So in Enfield, where four staff involved in the investigation of housing benefit fraud—and we heard earlier evidence of the value of the local intelligence built up, not least being able to see the local recidivists and other local characteristics of fraud—can be deployed: how will you be able to replicate that capacity of four staff who have gone?
Mike Driver
Those staff, if they are dealing with housing benefit fraud and error, will be joining the Department.
Mr Burrowes
No, they are going. In February it is moving over. They are going.
Mike Driver
They are not going. They are not disappearing.
Mr Burrowes
I have spoken this morning to the head of the counter-fraud service. They are going. They are gone. They will be gone by February.
Mike Driver
They have gone where?
Mr Burrowes
They will no longer be employed—there will no longer be four staff focused on counter-fraud in relation to housing benefit.
Mike Driver
In Enfield?
Mr Burrowes
Yes, in Enfield.
Mike Driver
One would question why we give them housing benefit administration in order to deal with fraud issues.
Chair
I have to say, Mr Driver, I have kept my cool on this, but you have cut the money to them; you are using any money you have got to set up your national fraud capability—you say, so that you can focus on areas of greatest need. Of course Enfield, or Islington, or East Kent or wherever it is are going to get rid of their staff. You have cut them; they cannot with the current cuts carry on. Do not live in a theoretical world when you are a pragmatic person—
Mike Driver
Chair, I am not living in a theoretical world.
Mr Burrowes
I can tell you a local authority that has made great strides in this area, as well—
Robert Devereux
Can I just check? It is obvious that they are no longer going to be working in Enfield. Are you saying that the four individuals are also not going to be working for us? Because I can well imagine that they are not there, because the creation of a single fraud investigation service means they are no longer employed by the local authority. [Interruption.]
Mike Driver
Thirty-two local authorities have now been centralised into the single fraud investigation service, and those staff have transferred into the Department.
Robert Devereux
They are in the areas they are in because we recognise I need local experience.
Meg Hillier
Where are you based? Could you be clear on this?
Chair
Where will the Enfield staff go, and where will the Hackney staff go—or the Barking and Dagenham staff?
Robert Devereux
As you are well aware, I have got a large network of retail outlets called jobcentres and quite a lot of fraud investigators of my own currently operate out of those. They are not spending their time behind desks; they are doing excellent work—
Chair
So they will be taken out of the town hall and stuck around the corner?
Mike Driver
If I could give you an example of something I do know, the single fraud investigation service currently covers Hillingdon. The person in Hillingdon who was dealing with fraud transferred from the local authority and is now working in the jobcentre in Hillingdon.
Chair
Big deal—what is the point in doing that?
Mike Driver
I just explained the point.
Robert Devereux
At the moment there are three classes of people: tax credit investigators; local authority fraud investigators; and DWP investigators. Not all of them have got the same powers or the same access to data and yet, as far as you and I are concerned, those three things are all welfare-related issues where we want to crack down on fraud and error. So the SFIS proposition is one that says, “Wouldn’t it be better if we pooled this and did it well?”
Mr Burrowes
The head of counter-fraud in Enfield told me that the local knowledge to deal with not least recidivists and others will be lost in the form of those four members of staff. Are you saying that that is wrong?
Mike Driver
I would be very happy to follow up with you—
Chair
No. Is it wrong or right? It irritates me when you give that answer. You must know that, because you are changing it.
Robert Devereux
We have not created this system in order to have everybody work out of Leeds. The whole point in creating the system is to have local knowledge about local things. I need to go and see people and knock on doors.
Chair
Then why play around with what you’ve got?
Robert Devereux
Because they have not got the right powers, Chair.
Mike Driver
If you take Enfield, if we have a problem in Barnet, we could deploy those staff who were in Enfield in Barnet. You cannot do that under the local government arrangements.
Mr Burrowes
The reality is that you have a Falcon team, headed up by the Met, that works alongside boroughs to deal with those issues across boroughs.
Mike Driver
By the Met?
Mr Burrowes
The Met have just recently set up a Falcon team to work alongside local authorities in collaboration. They are concerned that that may be supplanted.
Robert Devereux
We may be going around in circles. The Department has made a decision that having 300 teams of three or four doing local work on housing benefit who are not connected with all the people doing benefits or tax credits is a sub-optimal system for the public as a whole. The proposition is not to—
Mr Burrowes
But the reality is that housing benefit fraud has different characteristics across boroughs. You will see different flavours of it in Hackney from those in Enfield or Waltham Forest. The people on the ground who are best able to deal with that are those who know who to visit, with the local connections between those who are simply absent tenants and those who are cash-in-hand people. They have good on the ground expertise.
Robert Devereux
So do my staff. I do not know what your counter-factual is. If you think that we have sucked all this resource out and I am going to sit them in some pristine building miles away from your people, you are wrong.
Mr Burrowes
In terms of wider strategy, as has been said to us, wouldn’t it make more sense for this to be rolled out at the same time as universal credit?
Mike Driver
May I make a point about Enfield? In Enfield, staff are due to be transferred to the single fraud investigation service in March 2015. If you look at the performance of Enfield in 2013, it achieved 0.87 sanctions per 1,000 cases, of which 0.43 saw successful prosecutions. That placed it in the bottom quartile in terms of performance in dealing with both sanctions and prosecutions.
Chair
Can I ask you a simple question? You are taking people out of local government and putting them into these new, wonderful Jobcentre Plus-led teams. Will we have the same number at the end as we had at the beginning?
Mike Driver
We would hope so. If we take Enfield as an example, where there are four people, those four investigators will be spending some of their time dealing with housing benefit fraud and some on other types of fraud. In an organisation like Enfield, it may be that they supplement the four with five, six and seven in order to deal with other types of fraud, such as tenancy fraud, blue badge fraud and whatever else it might be. Some very small local authorities may have only one fraud investigator. What we have agreed in those circumstances is not to denude them of the resource that they have got in terms of the individual, so we may have to take a bit of a hit in terms of staff numbers in order to make sure that the local fraud investigation in those other areas is not diluted too much.
Chair
Can I ask one other question?
Mr Burrowes
We did not get an answer to the wider question about the timing of the roll-out of the single fraud service being at the same time as universal credit going online. Is there logic in that?
Chair
That is just what I was going to ask.
Robert Devereux
I am not sure. A large number of things that universal credit will bring are already being rolled in in advance. We have put the claimant commitment all through every jobcentre before universal credit. We have started to do some of the service—
Chair
Mr Devereux, do not take us off on a tangent. Local authorities are running housing benefit. It seems silly to take out the people who are on the ground trying to identify fraud and error before you have taken the function away from them. It just seems silly. It is not a theoretical thing. You have got these guys running the system at the moment for the foreseeable future. Why not reorganise your fraud function when you reorganise the system? That is the question, isn’t it?
Robert Devereux
Because even now, in the pilots that we ran that predated the SFIS, it turned out that this was a better thing to do.
Chair
I don’t want to talk about universal credit.
Mike Driver
This is the pilots for the single fraud investigation service. We ran pilots in nine local authority areas. They demonstrated greater value, which was supported because—
Chair
Greater value in what? Housing benefit fraud detection?
Mike Driver
Across the piece. Shall we send you the evidence? It seems to me that we are in a position here where the rationale for doing this, and the fact that it has been tested, is clear but it was not part of the Report. Shall we write you a note that simply says, “This is the evidence on which we have made a strategic choice?”
Mr Burrowes
We are hearing about the value of pilots, but we have heard from two heads of counter-fraud who have experience of many years—I have also heard my own head of counter-fraud saying this—that it would have made more sense for the roll-out to happen at the same time as universal credit going online. Do you accept that?
Robert Devereux
No, I do not. I do not see what the connection is.
Meg Hillier
Following up on that, I do understand that with real-time information and links to other benefits, there is a point at which the DWP is well placed to have all the computer systems talking to each other so they can easily see. But while housing benefit is administered locally, you do not have oversight of that in the same way. Surely those officers should be based in the local authority. That is the whole reason why they are there now.
Robert Devereux
Is it worth repeating again that most of the overpayments that this Report talks about are official error and claimant error? They are not fraud. The principal skill of the fraud investigators is to go after fraud, which is a small part of the story, and it is a really important fact that a lot of people who are defrauding housing benefit are probably defrauding JSA, and they could well be defrauding other things. All we have tried to do—this is what I said we have tested—is to say, “Wouldn’t it be a good idea if, instead of having three lots of people all with one hand behind their back because they cannot actually investigate all the other circumstances and they do not have access to all the data, we put them in a position where they have access to all of them?”
Meg Hillier
But there is some collaboration, as I understand it, that goes on between those bodies. On fraud, I take a bit of what you are saying, but the thing about fraud is that it is damaging to confidence in the system and it is illegal. It is quite right that people who wilfully, illegally and criminally defraud the system should be sought. Even if it is, as you say, a smaller amount than on other issues, local authorities are in a better place to do that. With real-time information, a lot of the other issues will, as you have indicated, resolve over time. For that criminal fraud, the local knowledge and the ability to visit and take action by the body that pays the money out is surely, as Mr Burrowes has said, just logical common sense.
Robert Devereux
My own fraud investigators are local. You cannot be a generic national fraud investigator. You have to have local knowledge to do it at all.
Meg Hillier
But you do not go into people’s homes?
Chair
Let’s move on.
Stephen Phillips
Before we do, to be fair to Mr Devereux, let me ask this: what were the benefits that were shown by the pilots of rolling this out nationwide long before universal credit?
Robert Devereux
The benefits—we will drop you line about what is underpinning the benefit case—rest on the fact that by enabling people to have systemic access to common data, and systemic powers that are the same—
Stephen Phillips
Is it basically that more fraud is detected?
Robert Devereux
That is what the business case is, yes.
Mike Driver
Yes. We are happy to share the business case with you. The business case, which is signed off by the Treasury, shows benefits just on the single fraud investigation service of £559 million.
Stephen Phillips
Can I ask a related question? As I understand it, 42% of the fraud and error across the DWP budget is housing benefit. Is that correct?
Robert Devereux
Gross.
Stephen Phillips
And yet you only spend 8% of the budget for detecting fraud and error on detecting fraud and error in the housing benefit bill. How do you account for the discrepancy?
Robert Devereux
Three quarters of all housing benefit case load get housing benefit because they already have a qualifying benefit from my Department. If that underlying qualification is wrong and there is some error in that, it can have a knock-on effect on housing benefit. What you are comparing is the precise amount of money I was spending purely on housing benefit, when housing benefit is sitting on top of a large edifice of entitlement. All the people of working age and out of work or sick, and all the pensioners on pension credit, are just passported on to this benefit. If I do not keep that straight, housing benefit would be riddled with its own errors just from that.
Stephen Phillips
Tell me if this is unfair, but in fact you would say that you did not need to spend more than 8% of the budget because it is better directed at the other benefits that passport people into housing benefit in the first place.
Robert Devereux
Nearly. There is a rather excellent table in the back of the Report that explains the multiple causes of fraud and error. A lot of those living together is a problem for DWP benefits and local authorities. There are some classes of problem that are peculiar to housing benefit, for example, tenancy fraud or rent problems, or the adults in your household—we don’t worry about that if you are in out-of-work benefits. We need to ensure that we are putting the appropriate effort into those. The single largest element of the entire shooting match is earnings, which is a particular housing benefit issue, because most of my benefits are paid to people who do not have work.
Stephen Phillips
But as you said, most of that ends up coming back to local authorities.
Robert Devereux
No. What I said was that a lot of the work that local authorities do is to collect back stuff they have been told exists. They are not going out with magnifying glasses and finding it. It is actually quite hard. How do you find people who have earned it? That is why RTI is potentially a breakthrough in the subject of housing benefit.
Chris Heaton-Harris
I have a couple of very general questions. We heard from the previous witnesses that they provide a report of a general number of cases and what have they found, which goes to Mr Buckingham at some point. Do you know which is the best and the worst-performing? I would like to think from Mr Driver’s stats that we got earlier that you do know which is the best performing and which is the worst performing local authority in England on eliminating error.
Steve Buckingham
No. What we do is focus on the performance measurement that we have at the moment, which is based on speed of processing. We use the performance development teams to work with the best-performing and the lowest-performing local authorities, based on speed of processing. That is speed of processing for new claims and for changes.
Robert Devereux
I should add, because it is a stats angle, that the reason why speed of processing is important is that in a world in which things are of short duration, by the time a late-processing person does it this problem will have gone away, but with about six or seven weeks of problems.
Chris Heaton-Harris
I understand the point about speed of processing, but there are two points to this. I am interested to know how you can help local authorities spread best practice between each other. If you are not measuring that in any way, it must be difficult to do that.
Steve Buckingham
We use the speed of processing measurement and we do know who is the quickest and who is the slowest. We use that information via the performance development teams to share whatever it is that those local authorities are doing with local authorities that we think are underperforming against certain metrics.
Chris Heaton-Harris
So the speed of processing directly links to the number of errors, does it?
Steve Buckingham
No, not directly, but we use it as a proxy to see who are the better-performing local authorities on that measure.
Chris Heaton-Harris
So if someone is a brilliant typist, or you are Islington and you have people entering data quicker than in dear old Enfield, which is obviously a basket case, you are saying that Islington will have fewer errors than Enfield.
Robert Devereux
The way this works is this: imagine the individual who does not declare some earnings for a while and then eventually loses those earnings. The person who is on the case and trying to be on top of what is happening is able to interact with that person faster than someone who is taking a long time to do it. It is a blunt proxy, and it is the lead measure we have got. At the risk of irritating you, as I can’t explain this very well, the thing we are trying to establish is, relative to the amount of overpayments they are collecting, how can I incentivise them to collect more overpayments wherever they are in the distribution? That will get me into a different sense of who is good at collecting overpayments.
Chris Heaton-Harris
There are a couple of points in the Report that particularly interested me. A fraud, error and debt taskforce has been set up to give local authorities more support and challenge and better info and to make use of existing and planned data matching. How do you know where to send them? Surely you would want to send them to the local authorities that most need the help. Where does this taskforce go? Where has it gone recently?
Mike Driver
The fraud, error and debt taskforce is a Cabinet Office group chaired by the Minister for the Cabinet Office, Francis Maude, and Sir Jeremy Heywood. It is a jointly chaired group that holds us to account for whether we can achieve the 1.7% MVFE target.
Chris Heaton-Harris
You have sent letters out. The Report says you sent 25 letters out in 2013-14 to local authorities that need a bit more help. How did you identify those?
Steve Buckingham
It is not the taskforce—we get feeds from local authorities via the single housing benefit extract, which gives us information on certain activities that take place within each local authority. We also have the ATLAS system, which translates daily down to local authorities the number of changes that have been effected on passported benefits, so we use some of the analysis around that to identify which local authorities are actioning those changes of circumstances and which ones aren’t. We will use that, plus other data such as speed of processing, to focus where the performance development teams then go and have conversations with local authorities. It is a combination of data going to local authorities and coming from them.
Chair
I have a couple of questions, Richard has one and then I think we might be there. Mr Buckingham, how long have you been in post?
Steve Buckingham
As the SRO, since September.
Chair
How many SROs have we had in charge of housing benefit fraud and error in the last five years?
Steve Buckingham
I believe I am the first one.
Robert Devereux
We have been running the programme for fraud and error as a whole, of which—
Chair
Housing benefit is a part. Okay. Tell me how many SROs you have had for benefit and fraud in the past five years.
Mike Driver
In terms of the fraud, error and debt programme overall, there have been three SROs, including the incumbent. The first was John Oliver. I was the second SRO, and the SRO now is the financial controller within the Department, Jon Fundrey. In terms of Steve’s role, he is the SRO looking specifically at housing benefit fraud and error.
Chair
That is a new job.
Mike Driver
It is the first time we have put anyone on a dedicated basis just to look at that.
Chair
Can I ask another question about the other side of the coin? Fraud and error seem to be coming largely out of claimant error. Therefore, if you look at the other side of the coin, underpayment is probably largely due to claimants not recognising their rights. There are some quite stark figures for people not in the housing benefit system at all who ought to be entitled to housing benefit. The total amount of housing benefit unclaimed—I think this is a figure by Age UK, but I may have that wrong—is between £1.85 billion and £3.1 billion. My slight concern—I have said this to the NAO—is that the focus is on this part of the equation and not on the other, which matters for my constituents who are really struggling. Can you talk a little about what you are doing about the unclaimed housing benefit to which people in the system are entitled—and those who are not even in the system because they do not recognise that they are entitled to housing benefit?
Robert Devereux
On the first point, I am looking to see whether I have brought the underpayment numbers.
Chair
It is about £400 million.
Robert Devereux
The extent of underpayment is a much lower number, not least because people have a rather bigger incentive to get in touch with us if their circumstances are the other way round.
Chair
It is still important to those people.
Robert Devereux
Yes. In terms of what you can do to drive up take-up, part of the problem is people who don’t know they are entitled to it in the first place.
Chair
I am talking about two figures—those who claim but are under-claiming, probably because of a change of circumstances, and those who don’t claim at all. Obviously it is a high range—£1.85 billion to £3.1 billion are the two figures for people who aren’t claiming at all. But there are also people who, because of a change in circumstances, do not up their claim, which is the £400 million.
Robert Devereux
On the £400 million, those are people in the system who we are assessing as not having disclosed to us that, given their circumstances, they could have more. The only way we can deal with that is to encourage people to keep reporting to local authorities.
Chair
And what do you do? What I am really saying is that this afternoon you have gone through a whole series of actions—what you are doing, your strategies and your incentives—to get money in that is owed. I am not 100% sure of what you are doing to help poor people who ought to be entitled to it.
Robert Devereux
That is a fair question. Ironically, some of the things that we have been doing most recently on the overpayment side—particularly because claiming low is an issue—have been on trying to get people to recognise that it is their responsibility to tell us. The most recent adverts we have been running are about keeping your claim up to date. That cuts both ways—keep your claim up to date to get you in as well as to stop there being overpayments. That is not a particularly strong argument, and we are spending rather more of our time on trying to make sure that the £1.4 billion does not go out through the door. On the structural question—
Nick Smith
How successful is that? After your advertising, have more people put in claims that they are rightfully entitled to?
Robert Devereux
The short answer is that underpayments have been pretty much steady for the past four or five years. There is no material change in the level of underpayment.
Nick Smith
So that is not working?
Robert Devereux
Consistent things that successive Governments have done have not improved on underpayments, no.
Mike Driver
Underpayments in the system are about 0.9% and have remained at about that level, while these are reported in our accounts at—
Chair
The other bigger group, which are the bunch—
Robert Devereux
The other big group—the people who are potentially entitled but do not get anywhere near us—are a more difficult thing for us to deal with, if I am honest. I know you do not want to talk about it, but one of the consequences of universal credit will be a much stronger take-up for housing benefit because it comes as part of the package. There is a lot of evidence that there are people on DWP out-of-work benefits who do not know that they are potentially entitled to housing benefit.
Chair
But until that comes—when ever, if ever?
Robert Devereux
I realise that it may not be the easiest thing to say to you, but none the less it is a part of the story. On both of those, you have a fair point. This is a persistent problem and it is quite difficult to know how best to address it, because you are trying to identify people with whom, by definition, you have no relationship.
Nick Smith
Our takeaway from this discussion is that you are not doing anything on that.
Robert Devereux
On that I am not doing anything other than advertising the availability of state support to millions of people, many of whom take it up. Trying to identify the class of person who has not done it is a rather difficult thing to do.
Mr Bacon
Mr Devereux, £23.9 billion is a lot of money. It is over 3% of all Government expenditure. I am going to park the question of whether the money could be better spent, but this is a subsidy for people to pay their rent because rents are too expensive, and the reason that rents are too expensive or too high is because there is not enough housing. As chair of the all-party group on self-build, custom-build and independent house building, I could segue quite easily on to ways that we could better spend the money, but I will not. [Interruption.] Mr Phillips has just pointed that out. I am interested in the intractability of this problem. I have in front of me the following text from one of our reports.
Robert Devereux
Text?
Mr Bacon
Text—not as in a mobile phone, but as in words. “It is totally unacceptable that seven years after we last looked at this issue, Housing Benefit fraud should exceed £900 million, and the Department still do not have information to show whether fraud is increasing, or all the information they need on the types of fraud, including landlord fraud, and variations at regional and local level. The absence of reliable information must cast doubt over the decisions the Department have taken to invest in anti-fraud work and over the achievements they have claimed…The Department expect to have better information once the second Benefit Review is completed shortly, and they are also looking at the feasibility of measuring changes in the levels of fraud at local level over time”. Would you like to tell me when you think that was written?
Robert Devereux
I think about 1990.
Mr Bacon
It was 1998. I repeated it to your predecessor’s predecessor, Sir Richard Mottram, in March 2003, when I also asked him, “Is housing benefit fraud going up or down?” He said, “We do not know. We think down, but we do not know.” That was 11 years ago. The quote that I gave you was from 16 years ago. You still did not know whether it was going up or down 11 years ago, and you didn’t know five years prior to that. Here we are in 2014. I see that the central case is for 5.8% overpayments, with a range from 4.7% to 7%; somewhere between 4.7% and 7% of these payments should not have been made—they are overpayments for whatever reason, whether claimant error, fraud or official error. I cannot think of many commercial organisations that have overpayments of 5.8% and survive for very long, but of course you are not a commercial organisation. Plainly, there is a very intractable problem here, but in answering questions about how you deal with it, you made it quite clear that there was a certain amount of effort that was not worth making because of the cost, time and effort involved in trying to get better at it. I am not saying, however, that you have not been doing things to try to get better—we have spent most of the past two hours discussing precisely that. Nevertheless, if you simply add up the overpayments over the past 16 years since 1998, the £900 million for claimant error would give you £14.4 billion. There is £340 million because of fraud—the £900 million figure that I mentioned from 1998 was fraud, but if you did it on the basis of £340 million it would give you another £5.4 billion, and if you did it on the basis of £900 million it would be another £14.4 billion. The official error of £150 million going back over the past 16 years at roughly the same rate would give you another £2.4 billion. In total, since 1998, that is somewhere between £22.2 billion and £31.2 billion. Now, I do not think that those numbers are likely to be correct—they are done on the back of an envelope—but they are not an order of magnitude wrong or a decimal point wrong. You have overpaid and not got back many, many billions, some of which could have been deployed to get better information of the kind that you say is too much effort. When you are paying out so much money—3% of all Government expenditure on this one benefit—and 6% of it is being overpaid, the result of which is that over 16 years you have paid out somewhere between £20 billion and £30 billion more than you should have, at current prices, without getting it all back, I don’t understand why it is not worth spending considerably more money on getting better information, including at a local level so that you can make comparisons between different local authorities and finally grip this, because it’s been going on for really rather a long time.
Robert Devereux
Some of the quotes that you read out are about us not knowing how much fraud and error there is, but you are looking at a document that tells us that we have six or seven years of fraud and error data, so we sort of know how to do that now, don’t we? When I said it was not worth spending the money, that was on a peculiarly narrow question to do with certification, right? I have tried to explain this afternoon that the principal area where things are going wrong with this benefit is because in a world of fluctuating earnings that are not regularly reported to me, the required system change is to grab hold of those earnings and first of all match them against what is being paid, or better, to calculate the benefit on the right basis to start with. I don’t need 300 levels of measurement to know that that is the right answer—it is the right answer. With the greatest of respect, we have been trying to think of the actual strategic things that have to be done to tackle this benefit, and the single largest is—
Mr Bacon
But you were thinking about that years ago. “The Department expects to have better information.”
Robert Devereux
With respect—
Mr Bacon
With the greatest of respect, Mr Devereux—I think that in the theology there is a difference between respect and greatest respect, and if you can play that game, so can I—the fact of the matter is that you expected to have better information 15 years ago. Perhaps the Treasury has something to say. You have been giving many billions of pounds over to the DWP to pay out; has the Treasury been content to do that?
Marius Gallaher
I don’t think that we are ever content about fraud and error—
Mr Bacon
One might say that you are never content about anything.
Marius Gallaher
But we are quite happy that the Department has tackled the problems as well as they could with the resources that they have been given.
Mr Bacon
That is my exact point: the resources are huge. There are billions and billions of pounds of resources.
Robert Devereux
I cannot read your quote about better information, but I am guessing that that is actually to do with estimating. The information that is available to the Government today, consequent upon the profound change that HMRC has made in RTI, is in a completely different ballpark from where it was previously. We could have hypothesised—
Mr Bacon
But when you say in a different ballpark, you mean better.
Robert Devereux
Yes, better.
Mr Bacon
But none the less, Mr Devereux, look at the NAO’s conclusions in figure 20 in appendix 3. In paragraph 4 on page 50 it says, “The Department’s measurement does show an increase in the central estimate”, and “There are several reasons why we feel this trend raises concerns and indicates that fraud and error overpayments have increased” and goes on to set out what those are. Moreover, it says that “our simple tests under-report the significance of estimated increases.” So, despite the fact that it is in a different ballpark—better than it was—it is still going in the wrong direction.
Robert Devereux
I nearly said “with respect” there but I won’t, not that I don’t have any. The argument that I was making is that if you look at the problem as it is currently characterised, a third or more of it, even after debt collection, is to do with earnings. All Governments prior to now have had no method of collecting that because there is no centralised system for collecting earnings. This Government have put in place, in the RTI system, something that in the future—not today—will be capable of tackling that problem. This Government have also put in place, although I recognise the Chair’s view that this is some years away, a systemic change to the benefits system, which takes it away altogether. There are two things that have not been possible for anybody previously to assert or do and that are positive on this particular benefit. It cannot possibly remove the aggregate losses of the past decade; I agree with that.