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Social Security Fraud Act 2001

Colluding Employers

Background

153.The report by Lord Grabiner concluded that very few offenders are punished. Prosecution in particular takes up large amounts of staff time, so the undoubted deterrent effect it has must be balanced against the high cost. Generally, it is used only in the more serious cases.

154.An administrative penalty, offered to a colluding employer as an alternative to prosecution, will provide a useful additional tool to target these cases. It will go some way to streamline the sometimes cumbersome prosecution process. In addition to rationalising management of the case, administering the penalty more swiftly following discovery of the offence should have a deterrent effect on the employer and others contemplating a similar offence.

155.The existing sanctions regime, which includes penalties as an alternative to prosecution for benefit claimants provides a precedent and many details of how such a scheme might work in practice are already established. These include offering penalties only in cases where prosecution is a viable alternative should the offender refuse to accept the penalty offer. The offer is made on the basis that, once it has been accepted, the Department will not then prosecute for that offence, subject to a 28-day cooling-off period during which the person is free to withdraw his acceptance.

156.The administrative penalty builds upon the report’s recommendations, which aim to deter and punish people who are working in the hidden economy. This is compatible with other Government policies, which aim to encourage people to move into a legitimate lifestyle.

The measures in the Act

157.This measure introduces a new discretionary power, which provides for the payment of a financial penalty, as an alternative to prosecution. This applies in circumstances where the Secretary of State or authority responsible for administering Housing Benefit or Council Tax Benefit has sufficient evidence to institute proceedings (or request that the Lord Advocate or procurator fiscal consider proceedings in respect of the clause’s application in Scotland) against an employer for either of the following kinds of offence:

158.The first kind of offence is one committed in connection with an inquiry into the employment of one or more employees. It will involve the hindering of an investigation. In these circumstances the employer may be offered a penalty of £1,000 as an alternative to prosecution. The second kind of offence may involve particular claimants, and will relate to acts or omissions that help those claimants to commit offences. In these circumstances the employer may be offered a higher penalty, as an alternative to prosecution, of £1,000 multiplied by the number of employees involved in the fraud, up to a maximum sum of £5,000.

159.The penalty may be offered to those organisations or people who employ persons to work in any capacity: it will cover all cases in which a claimant works directly for another person, including cases where the claimant is self-employed. The penalty applies not only to the person (or company) who is the actual employer but also to individuals who are within the same organisation and who have a delegated responsibility to appoint staff.

160.The measures include a regulation-making power to prescribe the information to be included in the written notice which informs the employer that a penalty may be offered.

161.The employer will not be prosecuted for conduct for which the penalty has been offered where he has made an agreement to pay the penalty. The measures include provision for the employer to withdraw agreement to pay the penalty within 28 days from the date of the agreement. Non-agreement or withdrawal of agreement may result in prosecution for the conduct for which the penalty was offered.

162.The measure provides that an unpaid penalty may be recovered as a civil debt, or by deduction from social security benefit where the employer is a claimant and in receipt of benefit.

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Explanatory Notes

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