Fighting Fraud (Fraud Act 2006 and Digital Fraud Committee Report)

Lord Browne of Ladyton Excerpts

Friday 30th June 2023 Lords Chamber

[Lord Browne of Ladyton (Lab)]

My Lords, it is an enormous pleasure to follow the noble Baroness, Lady Morgan, who opened this morning’s proceedings with the lucidity that also characterised her inclusive chairmanship of the fraud committee, on which I had the pleasure to serve. The report that we are here to address is a powerful piece of diagnostic work and is testament to her energy and commitment, as well as the hard work of the excellent committee staff.

As we heard, there is an extraordinary disjunction between the seriousness of the offence of fraud and the resources we devote to its prevention and to the pursuit and prosecution of those responsible. Fraud accounts for 41% of all crime against the individual, while only 1% of our law enforcement focuses on economic crime.

I welcome the Government’s pledge, in their recently published Fraud Strategy, to create a new national fraud squad comprising 400 specialist investigators, but I should be grateful if the Minister would share some specifics. The committee’s report shows the extent to which digital fraud has increased, with 80% of fraud now cyber enabled. How will these new officers be equipped to deal with the complexities of online fraud, including fraud which takes place on the dark web or through blockchain? Those tasked with such investigations will need either to be drawn from sectors where these skills already are both essential and scarce or, to put it mildly, to be put through some extensive training.

One of the recurrent themes in the report is an inclination to be tentative about the data on which conclusions are based. That is a function of a wider problem, with the absence of consistent measurement in government statistics. In 2010, the National Fraud Authority, an executive agency of the Home Office, first published its Annual Fraud Indicator. Its authors assessed the UK’s total loss to fraud to be £30 billion per year. In 2011 it was £38 billion, and in 2012 it had risen to £73 billion—a rise of about 150% at a time when reporting of fraud dropped off the crime statistics.

That year, Theresa May, then Home Secretary, transferred responsibility for fraud to the NCA. In 2017, at the request of the NCA, the same academics who informed the national fraud indicator published a national fraud indicator figure of £190 billion per year. A month ago, the same experts published an annual fraud indicator for 2022. The total annual loss now stands at £219 billion, £8.3 billion of which was fraud on individuals. That figure was £3.5 billion in the 2010 indicator.

So, after a further unexplained hiatus in transparency reporting, the situation has again markedly deteriorated. It is little wonder that about six months ago the NAO said about fraud that the Government do not have the data they need and are unable accurately to measure the impact of their policies. This inability persisted up to and including the publication of the fraud strategy. It would be useful to know on what basis we can judge the likely effectiveness of the measures therein in the absence of consistent and reliable data on which to base such judgments. Perhaps that explains why the gleaming promise held out as a measure of success for this strategy is a reduction of fraud by 10% in time for Christmas 2024—it appears conveniently close to the last date on which a general election must be held, one might think. This is hardly a Napoleonic ambition, given that the best data we have now suggests that the Government in one form or another have presided over an increase of more than 550% in total fraud since 2011.

In focusing on the scale of the problem, I emphasise that the victims of fraud range across vulnerable individuals, major corporations and small businesses as well as the public sector, and the Government themselves account for a significant amount of the total. I recall the powerful testimony we heard from the Bank of England, making it clear that fraud directly affects and undermines consumer confidence. Under successive Governments an attitude has prevailed that fraud is an unfortunate by-product of our strengths. Apparently, fraud has become so prevalent in the UK because of the widespread use of the English language, our position as a digitalised global financial hub, our adoption of the faster payments system, and the emergence of crypto assets. These are all said to be pull factors for fraudsters. Every element of this description could be applied to the United States, and yet UK residents are exponentially more likely to be victims of fraud than their US counterparts. This is a British problem, and its scale demands that it be a national priority. The answer is not to dilute those strengths but to ensure that they are hedged about by clear preventive mechanisms and appropriately severe financial penalties for those found to have enabled fraud. I do not wish to move on to the ground more properly covered in the Online Safety Bill or the Economic Crime and Corporate Transparency Bill but merely note that some of these questions are being covered as they journey through your Lordships’ House.

Fraud is not merely a serious offence; it is a direct enabler of far more serious offences. Organised crime, drugs, arms and human traffickers, kleptocrats and fugitives from justice all use money gained by fraud to fund their activities or to escape justice. To some extent, we have the appropriate mechanism for punishment already in place. The committee’s report examined the Fraud Act 2006 and found it to be effective, although greater maximum sentences would be desirable, but our ability to use the provisions in that legislation have been weakened by a significant decrease in the number of prosecutions of fraudsters, outdated disclosure procedures, and court backlogs. Recent data from the Law Society of England suggests that the Government’s promise to reduce the backlog is sitting rather awkwardly alongside figures that show it to be rising, so I suspect we may waiting a little time for that problem to abate.

In coming to the end of my remarks, I am conscious that I have painted a somewhat bleak picture, but none of this is inevitable. I note the Government’s acceptance of five of the committee’s six principal recommendations, in part or in full, and I hope to see the resources made available to ensure that that acceptance is matched by action. Fraud is not a victimless crime. As has already been said, it targets the most vulnerable, reduces the financial resilience of millions of households across the country, diminishes their confidence in the institutions on which they are supposed to rely and can drive them to desperate measures. Earlier this week, Ipsos released data showing that 7% of 18 to 75 year-olds have been driven to such straits that they have used an illegal moneylender in the past three years. We have all heard the rhetoric around predatory capitalism, but the fact that loansharking has become one of this country’s few growth industries renders satire redundant. This report shows a critical need for cultural change, it outlines the necessity for clear lines of accountability and enforcement and, most of all, it testifies to the need for far more effective preventive measures. I look forward to hearing how the Government intend to translate these needs into action.