Public Authorities (Fraud, Error and Recovery) Bill 2024-25

The Public Authorities (Fraud, Error and Recovery) Bill 2024-25 was introduced on 22 January 2025. It is bill 167 of the 2024-25 parliamentary session. The bill is listed for second reading on Monday 3 February 2025.

The government intends part 1 of the bill to safeguard public money by reducing public sector fraud, error and debt. Part 2 would introduce new powers to help the Department for Work and Pensions (DWP) address fraud and error in the social security system, and recover overpayment debt.

This briefing does not provide an exhaustive guide to every clause of the bill. At the time of publication, the government has published a range of accompanying documents alongside the bill:

• Explanatory notes
• An impact assessment
• A delegated powers memorandum
• A human rights memorandum

All these can be found on the bill page for The Public Authorities (Fraud, Error and Recovery) Bill.

Part 1: Cabinet Office Public Sector Fraud Authority (PSFA)

Part 1 of the bill is intended to help the government address losses due to fraud and error occurring outside the tax and benefits systems.

What is fraud and how much has been lost?

Fraud generally refers to intentionally dishonest actions aimed at either making a gain or causing a loss of money or other property. Error refers to cases where payments and other transactions are incorrect but losses appear unintentional. Fraud and error are seen as longstanding threats to public finances.

The total amount of fraud and error outside the tax and benefit system is difficult to estimate. The National Audit Office puts the amount in the range between £5 billion and £30 billion in 2023/24. Temporary covid-19 schemes that were not run by HMRC, such as the bounce back loan scheme, are estimated to have lost £5.4 billion to fraud and error.

The government’s impact assessment estimates that the powers in this part of the bill could help recover around £54 million over ten years. The benefits are expected to exceed the costs of recovery.

Previous government’s response

In response to concerns over increased levels of fraud during the covid-19 pandemic, faltering recovery efforts and the lack of a coordinated cross-government response, past governments have taken various steps.

In August 2022, the previous Conservative government established the Public Sector Fraud Authority (PSFA) within the Cabinet Office as the centre of expertise for the management of fraud against the public sector. The PSFA has powers to investigate suspected fraud and refer these matters to other government departments and bodies.

Labour’s commitments on counter fraud

Labour’s manifesto for the 2024 general election set out its commitment to act against fraud and waste across the government. In December 2024, the Chancellor appointed a covid counter-fraud commissioner to recover funds lost to fraud during the pandemic.

Historically, the government’s focus has been on recovering losses in the areas with the highest levels of known fraud, mainly in the tax and social security system. This has left departments other than DWP and HMRC with limited powers and resources to address sizeable losses. This bill would broaden PSFA’s powers to investigate fraud against the public sector and recover losses on behalf of other departments and public bodies, with the exception of DWP and HMRC. The powers would be similar to those held by  the DWP and HMRC.

Cabinet Office functions and PSFA powers in the bill

Part 1 of this bill would set in statute the core functions of the Minister for the Cabinet Office to investigate suspected fraud against public authorities, to recover money they are entitled to, to take enforcement action and to support other departments with their counter-fraud efforts. It creates new powers to this end.

Part 1 would also allow the PSFA, currently within the Cabinet Office, to be established as a separate body from the Cabinet Office. The Cabinet Office would be able to transfer the functions under this bill to the PSFA. The government intends to test various approaches to the new fraud and error powers, before using this option. The Minister for the Cabinet Office would also be able to delegate certain tasks to officials at the PSFA.

Investigatory powers

The enhanced investigatory powers of the PSFA would include power to compel third parties to provide specific information and get access to certain communications data to support its information gathering. The bill also provides oversight and independent review for these powers.

Entry, search and seizure powers

The bill would extend the PSFA powers to allow authorised investigators to enter and search premises subject to a court warrant. Investigators would be able to seize any relevant material. The government’s intention is to ease the burden of fraud investigations on the police. It says these powers would be the minimum necessary to secure evidence.

The Independent Office for Police Conduct (IOPC) (in England and Wales) would be given a role in providing oversight of the use of these powers.

Recovery of assets

The bill would also provide for new powers to recover assets. This concerns debt and overpayment related to fraud against the public sector. The minister would be able to act on behalf of another public authority. The recovery powers could also be used to recover certain penalties and costs incurred during the process. The bill would provide for an oversight of these powers.

The bill sets out the methods for recovery of assets from bank accounts or deductions from earnings. The minister would, for example, be able to request a bank to make lump sum and/or regular payments from an individual’s bank account to the government, subject to certain procedures.

Similarly, the minister would be able to request an employer to make deductions from earnings of an employee, subject to review and appeal.

Civil penalties

The bill would allow the minister to impose a penalty for fraud, provided that on the balance of probability, a person has carried out fraud or conspired to do so. The minister would also be able to impose a penalty on persons and bodies, for failing to comply with requirements concerning fraud investigations and recovery of money or assets. The penalties would be subject to appropriate appeals.

The bill would also extend the time limit for bringing action against fraud to twelve years from the date the fraud is discovered or could have been discovered with reasonable diligence. This would enable the government to spend more time on complex investigations, such as those linked to covid-19 contracts.

Part 2: DWP fraud, error and debt recovery powers

An overpayment occurs when a person receives a benefit they are not entitled to, or more benefit than they are entitled to. This may be due to fraud or error on the part of the claimant, or because of a mistake, failure to act or delay on the part of the DWP (‘official error’). In most cases overpayments become debts the DWP will attempt to recover when identified.

For the financial year 2023/24, the DWP estimates that benefit overpayments totalled £9.7 billion, 3.7% of all benefit expenditure. Overpayment rates are higher for means-tested benefits such as Universal Credit: an estimated £6.5 billion, or 12.4% of total Universal Credit expenditure, was overpaid due to fraud or error in 2023/24. 10.9% was estimated to have been overpaid due to fraud alone. The level of fraud and error in 2023/24 was lower compared with the previous two years, but remains higher than before the covid-19 pandemic.

The increase in the value of benefits overpaid due to fraud and error during and after the pandemic has renewed the government’s focus on adressing the problem.

Previous Conservative government’s approach

The previous Conservative government announced various measures to tackle this increased fraud activity, including increased funding and resource for counter-fraud teams, enhanced checks of high-risk claims before payments begin, and delivering ‘targeted case reviews’ of existing Universal Credit awards considered at risk of being incorrect.

The Conservative government also said it would legislate for new powers as part of a package of measures to address the issue of increased levels of fraud and error following the pandemic.

Labour government’s plans

Autumn Budget 2024 confirmed measures to tackle fraud and error in the social security system, including funding for additional fraud and error staff and an extension of targeted case reviews. The government estimated that new powers in an upcoming Fraud Error and Debt Bill could save around £1.5 billion over the five years to 2029/30, out of a total £9.2 billion in savings from measures to tackle fraud and error in the welfare system.

New DWP powers in the bill

The new powers would help the DWP address fraud and error in the benefits system and recover overpayment debt.

Information gathering powers

The bill would reform existing information gathering powers the DWP has by expanding the range of third parties the DWP can compel to provide information in support of criminal investigations. It would also allow improved efficiency through workforce changes and a digital platform for information requests, and extend powers to include grants and other DWP payments.

Powers to verify eligibility with financial institutions

New eligibility verification powers would allow the DWP to require banks and other financial institutions to provide information about claimants of certain benefits to help verify eligibility and entitlement. These powers are not limited to individual cases where there are already reasonable grounds to suspect fraud, so could be used at scale to identify potential fraud or error.

The bill provides for safeguards, including limitations on what information can be shared between the DWP and financial institutions, and the requirement to consult on a statutory code of practice.

Entry, search and seizure powers

The bill would give DWP investigators new powers to enter and search a premises with a warrant, and seize relevant material. The bill would also make it a criminal office to obstruct DWP officers exercising these powers, and provide a legal framework for the DWP to dispose of property it has seized.

The bill would give the Independent Office for Police Conduct (IOPC) (in England and Wales) and the Police Investigations and Review Commissioner (PIRC) (in Scotland) a role in providing oversight of the use of these powers.

Overpayment debt recovery and enforcement

New overpayment debt recovery and enforcement powers would allow the DWP to recover overpayment debts from individuals no longer receiving benefits and not in Pay As You Earn (PAYE) employment. The DWP would be able to recover debts from such individuals directly from their bank accounts, without having to go to court.

The DWP would also be able to apply to the court to disqualify a debtor from holding a driving licence, where all other attempts at recovery have failed.

Changes to Administrative Penalties

New powers would extend the scope of Administrative Penalties to include fraud involving a wider range of DWP payments, not just benefits. The bill would also remove the additional ‘loss of benefit’ claimants can face when they accept an Administrative Penalty.

Inspection and oversight

The bill would require the Secretary of State to appoint an ‘independent person’ to inspect and report on the DWP’s use of its investigative powers.

Territorial extent

Annex A of the Explanatory Notes gives a clause-by-clause overview of the bill’s territorial extent and application, and provides an overview of the clauses for which consent is being asked.

Part 1 of the bill – on powers to address fraud outside the benefit and tax system, and on the functions of the PSFA – would extend to England and Wales, in line with policing powers and Fraud Act 2006.

Specific provisions in part 1 engage the devolved legislative competencies in Wales. These concern:

• the investigatory, enforcement and recovery functions of the minister for the Cabinet Office (clauses 1 and 2);
• the Police and Criminal Evidence Act 1984 (PACE) powers and their oversight (clauses 7 and 9 and schedule 1);
• the independent review of the new Cabinet Office powers (clauses 64 and 65); and
• the establishment of the PSFA as a statutory body (clause 69 and schedule 2).

The UK Parliament normally only legislates on devolved matters with the consent of the relevant devolved legislature. For this bill, the UK Government intends to seek a legislative consent motion from the Welsh Government in relation to matters which fall within the devolved competence.

Part 2 of the bill providing for DWP fraud, error and debt recovery powers extends to England, Wales and Scotland.

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