Public Authorities (Fraud, Error and Recovery) Bill

Baroness Finn Excerpts

Committee stage
Wednesday 25th June 2025 Grand Committee

Moved by

[Baroness Finn]

122D: Clause 95, page 61, lines 9, leave out “reasonably incurs” and insert “or banks as defined in this Act incur”
Member’s explanatory statement
This would permit costs incurred by banks, as they are defined in the Bill, to be recovered.

[Baroness Finn (Con)]

My Lords, many congratulations to the noble Viscount on the birth of his granddaughter.

Amendment 122D, in my name and that of my noble friend Lord Younger, touches on a principle that we have returned to time and again during Committee: that those institutions asked to play a role in the delivery of public policy must be treated not as passive instruments but as valued and active partners.

Clause 95, as currently drafted, enables the Secretary of State to recover costs from those individuals committing wrongdoing or fraud that the Secretary of State “reasonably incurs” in the exercise of the powers set out in this legislation. That is both logical and fair. However, what it does not do, and what our amendment seeks to rectify, is recognise that banks, too, will incur costs in the process of complying with the obligations imposed by this Bill. Those obligations are not trivial. Banks will be expected to carry out eligibility checks, respond to requests for information and facilitate direct deduction orders. These are significant operational functions, requiring staff time, system changes and compliance resources. The financial and logistical burden on institutions, particularly smaller and mid-tier banks, should not be underestimated.

We have heard repeatedly throughout Committee that the effective functioning of this legislation depends on strong co-operation between government and the financial sector. If that is true—we believe that it is, notably from what we have heard from the Government so far on the test and learn exercises—we must be honest about the responsibilities that we are placing on banks and we must be clear that those responsibilities come with real-world costs.

We understand that this arrangement between the DWP and the banks is new and, as such, it is unclear how many cases there may be to deal with. It may be a huge number, or it may end up being fairly minimal. Of course, we hope for the latter. More likely, this is an exercise of checking and counter-checking between the banks and the DWP in order to ascertain clarity of wrongdoing or not. It therefore begs the question of resources and costs. Can the Minister give us some estimates of the likely number of cases involved? Who will pay for the costs of managing these cases? If it is the banks, what discussions, if any, have taken place on the amounts? Is there an understanding of what happens if the costs become too great a burden on the banking sector? Is there some agreement that, if costs exceed a certain amount, the DWP—ie the taxpayer—will pay the excess?

We do not think that it is good enough to say that banks must comply. We must also ask how they can comply and what support or protections the Government are willing to offer them in return. Amendment 122D would provide a simple but important clarification: that banks, as defined in this Bill, are entitled to recover the costs that they incur as part of fulfilling their legal obligations. This is not about profit; it is about fairness, sustainability, and operational feasibility.

Let us not forget that we are asking private institutions to assist in the delivery of public sector enforcement mechanisms. That is a departure from many traditional roles and it is only right that we recognise the cost implications of that shift. We would not expect public bodies to take on additional responsibilities without due consideration of the costs involved, nor should we expect that of banks. They are not merely pipelines through which government powers are to be channelled. They are regulated institutions, fundamental to our economy, whose engagement in this regime must be underpinned by a mutual understanding of expectations, limits and recompense.

We have rightly asked for high standards of data protection, compliance and verification. We have spoken about building confidence in the system and ensuring proportionality in the exercise of power. That confidence must also apply to those partners on whom the success of the Bill relies. If we expect efficiency, we must also provide clarity, including clarity about the financial impact of compliance.

The other significant and important point to raise here is the impact of opportunity costs. We know that the banks will dedicate staff, time and resources to undertake these tasks, which will prevent them from undertaking core duties that would otherwise make them money. We cannot just focus on operational costs; we need to focus on the benefits that banks will miss out on as a result of complying with the Bill. Can the Minister therefore set out to the Committee how the Government will calculate the opportunity cost? Can she confirm that these costs will be determined in partnership with banks and where the money for the reimbursement of these opportunity costs will come from?

In the spirit of pragmatism and partnership, I urge the Minister to consider how the principles of our amendment could be taken forward. It seeks a small change to the text but would be an important signal to those we rely on to help deliver the objectives of the Bill that they will be supported, not simply directed. We all want to see this legislation succeed; we have made that point many times. For that to happen, those on whom it places demands must have confidence that they are part of a fair, transparent and properly resourced framework. Amendment 122D would help us move one step closer to that goal. I beg to move.

[Lord Palmer of Childs Hill (LD)]

My Lords, Amendment 122D, tabled by the noble Viscount, Lord Younger of Leckie, and moved and spoken to so fully by the noble Baroness, Lady Finn, would permit banks to recover the costs that they incur, as defined in the Bill. The principle behind the amendment is to recognise that, while banks play an essential role in supporting public authorities to identify and recover funds lost through fraud or error, the operational and administrative demands placed on them can be significant. Allowing banks to recover reasonable costs would ensure that the burden of implementing these public service functions does not fall unfairly on private institutions and would support a collaborative approach between the Government and the financial sector.

However, it is important to ensure that any cost-recovery mechanism is transparent, proportionate—how often we keep using that word—and subject to appropriate oversight. Questions remain about how the “reasonable costs” mentioned in the Explanatory Notes for Clause 95 will be defined, who will determine the quantum that can be recovered and what safeguards will be in place to protect individuals from excessive fees. There must be a clear framework to prevent costs from undermining the overall financial benefit to the taxpayer or placing undue hardship on those subject to deduction orders.

As the Bill progresses, it will be vital to clarify these details—I hope the Minister will help do that—ideally through the code of practice and ongoing consultations with stakeholders to maintain fairness, accountability and public confidence in the system. I await the Minister’s response, to fill the gaps that the noble Baroness, Lady Finn, and I have outlined, particularly what “reasonable costs” is meant to mean.

[The Minister of State, Department for Work and Pensions (Baroness Sherlock) (Lab)]

My Lords, I thank the noble Baroness, Lady Finn, for introducing Amendment 122D and the noble Lord, Lord Palmer, for his contribution. It is worth saying at the outset that the noble Baroness’s comments ran quite wide, encompassing some of the broader issues that we discussed in previous debates on the Bill.

New Section 80F, inserted by Clause 95, allows any reasonable costs incurred by DWP in recovering debt to be added to the total debt owed, and therefore for them to be collected through any means of recovery available to DWP. As drafted, the amendment would permit the Secretary of State, but not the bank, to recover any costs incurred by the bank as though it were part of the debt owed to DWP through methods of recovery such as deductions from benefit, et cetera, but without any requirement to pass any money recovered to the bank. I realise how hard it is to draft amendments in opposition—I have been there—so I believe it is possible that the intention of the amendment was to allow a bank only to recover any cost it had incurred when complying with its obligation under Schedule 5, so I shall address the amendment on the assumption that was the intention.

Officials have engaged extensively with key representatives from the finance sector, including UK Finance, and we are seeking to work collaboratively to ensure that the legislation enables banks reasonably to meet their legislative obligations without causing problematic burdens for them or unintended consequences for individuals. Indeed, changes have already been made to the Bill based on that engagement and feedback.

I agree that banks should be able to recover administrative costs associated with implementing a direct deduction order on behalf of DWP. These costs should be reasonable, providing some protection to debtors and consistent with existing legislation. In line with existing Child Maintenance Service recovery regulations, therefore, DWP will set the maximum limits for costs associated with implementing regular and lump sum deduction orders that banks can recover. Paragraph 24 of Schedule 5 further requires DWP to consult persons who represent the interests of the bank and any other appropriate persons in making the regulations.

On safeguards, banks are able to deduct any reasonable costs they incur when complying with a direct deduction order. In practice, that prevents a bank charging the debtor more than its costs. Paragraph 24 of Schedule 5 allows us to make provision about the administrative charges that can be imposed by banks. That power will be used to introduce a cap on the charges that can be imposed under this clause that can be adjusted in line with inflation to ensure that the charges remain reasonable at all times. I think we made that clear.

The code of practice spells out specifically what we will do in this area. I assure the noble Lord that we are discussing with the banks what is reasonable. This works in other areas. The code of practice says that banks may deduct any reasonable costs and that the costs that they can deduct will be limited by legislation and taken into consideration when the terms of the deduction order are done, to ensure that it remains affordable. I hope that, with those reassurances, the noble Baroness will feel able to withdraw her amendment.

[Baroness Finn (Con)]

I thank the Minister for her response. In closing, I want to reiterate that the Bill asks a great deal of banks, in terms not just of compliance, but of active participation in delivering government policy. That comes with real operational and financial demands, especially for smaller institutions, plus the opportunity cost for the time and resources that banks might be required to dedicate to these non-profit-making activities. I hear what the Minister says about the code of practice, but there is a difference between the code of practice and having something in the Bill. It makes an important change to ensure that banks, like public authorities, can recover the costs they incur when carrying out duties placed on them by legislation. We believe that it reflects a basic principle of fairness and partnership, which is a principle that we have returned to throughout this Committee.

I thank the noble Lord, Lord Palmer, for his support. He made the important point that oversight must be proportionate and transparent.

If we want this framework to work effectively and sustainably, we must ensure that those we rely on to implement it are not left bearing disproportionate costs. That should be absolutely clear. This is not about profit but about ensuring that compliance is feasible, resourced and built on mutual trust. I hope that the Minister will recognise the value of the amendment and the principle behind it. Those helping to enforce the law must be supported, not just expected to comply, and that should be in the legislation rather than the code of practice.

I appreciate the Minister’s remarks that discussions are ongoing with banks about how the demands will be incorporated and developed operationally. Can she confirm to the Committee whether this matter has been raised in the discussions and what assurances the Government have to date been able to give banks on this important question?

[Baroness Sherlock (Lab)]

I have been talking to the banks about everything but this is one of the less complicated parts. We are simply talking about the cost of making a deduction order. Banks are used to making deduction orders in relation to the Child Maintenance Service. On that, we agreed a fee and the banks can deduct reasonable amounts. We simply put a cap in. If anything has come out of the conversations that is relevant, I am happy to add it to a letter I give the noble Baroness. I should expect the matter we are discussing to work in a way analogous to how it has worked for the CMS, without difficulty.

[Baroness Finn (Con)]

I beg leave to withdraw the amendment.

Amendment 122D withdrawn.