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Social Security Fraud Act 2001

Background to the Act

1.The Government estimates that fraud in social security benefits costs the taxpayer at least £2 billion every year. In March 1999, the Government set out its strategy for reducing fraud and error in the social security system in the Green Paper entitled "A new contract for welfare – Safeguarding Social Security"(Cm 4276).

2.The central principle in the Green Paper was “getting it right, keeping it right and putting it right”. The intention is to secure the social security system by limiting the possibility of invalid claims entering it as new claims, ensuring that claims are adjusted when relevant changes of circumstances do occur and detecting those claims already within the system where benefit is being overpaid due to fraud or error.

3.The Government has made a public commitment through the DSS Public Service Agreement to reduce fraud and error in Income Support and Jobseeker's Allowance by 25% by March 2004 and 50% by March 2006. The expectation is that by March 2002 at least a 10% reduction will have been achieved.

4.The most recently published research on Income Support and Jobseeker's Allowance, where levels of fraud and error are measured continuously, estimated losses through fraud and error for the period April 1999 - March 2000 to be in the region of £1.32 billion (8.4% of programme expenditure).

5.In November 1999, Lord Grabiner QC was asked by the Chancellor of the Exchequer to conduct an investigation into the informal economy and produce a report in time for the March 2000 Budget. He was assisted by a taskforce of officials drawn from HM Treasury, the Inland Revenue, Customs and Excise, DSS and the Department for Education and Employment.

6.The final report entitled, "The Informal Economy" (copies available from the Public Enquiry Unit, HM Treasury, Parliament Street, London SW1P 3AG), suggested that every year billions of pounds were being lost to the informal economy. It proposed new measures to tackle the hidden economy and concluded that the Government should introduce new ways to tackle those operating in it. Lord Grabiner estimated that at any one time 120,000 people are fraudulently working and claiming benefits. This fraud costs the taxpayer half a billion pounds every year.

7.In July 2000, the Government published a consultation document "Safeguarding Social Security: Getting the information we need" (copies available from Welfare Reform (Fraud) Freepost (HA 4441) Hayes UB3 1BR), in response to one of Lord Grabiner’s recommendations that the Government should examine how to make use of information held by the private sector.

8.This Act seeks to implement the Government's proposals in response to Lord Grabiner's recommendations on tackling benefit fraud.

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