It’s a pleasure to be here to talk about the importance of tackling fraud, error and debt.
I sometimes describe myself as the minister responsible for the plumbing – the processes behind the scenes that enable government to function, whether it’s buying goods or services, running major projects or, in this instance, ensuring that taxpayers’ money is actually spent on all the things that it’s meant to be spent on.
It’s not pulse racing stuff, it doesn’t get the blood flowing more rapidly, but it really does matter, particularly in the current spending context.
As you know, 5 years ago Britain was in the midst of the deepest recession since the war, with one of the largest budget deficits of any major economy – a bigger budget deficit proportionally than Greece or Portugal or Spain or Ireland, all countries that faced a sovereign debt crisis.
We had to save money and so the Prime Minister gave me the task of cutting the cost of government. It was a crucial, central part of our long-term economic plan for the country.
In the past, most ministers who have held this job have tended to view the Cabinet Office as a stepping stone to higher office, but I was probably unusual in that this was the job I wanted, both in opposition and when we came into government.
In fact I think none of my 8 predecessors lasted more than 18 months in this job and I’m told I’m the longest serving Paymaster General since the 1880s.
Thanks to the support of some brilliant civil servants, together with people we brought in from the private sector, this consistent focus has meant we’ve been able to establish much greater central oversight over common areas of spending and activity, which is a huge step toward making government more efficient and effective.
Efficiency and reform achievements
Five years ago, the size and cost of central government was growing unchecked.
Now we’ve cut the size of the civil service like-for-like by 21%, which has allowed us to get out of almost 20% of our property holdings.
Five years ago, government didn’t even know who its largest suppliers were. I had to write to the chief executive of the ones we guessed were the biggest asking them to tell us how much business we did with them.
Now we’ve saved billions by renegotiating some of our biggest and most expensive contracts, while we’ve replaced others altogether with simpler and more cost-effective deals.
Five years ago, the phrase ‘government IT’ was a byword for failure.
Now, with the likes of our award-winning web domain GOV.UK and our digital by default services, we can genuinely claim to be a world leader in digital government. It’s no accident that in the last 6 months both the United States government and the Australian government have set up their own versions of the Government Digital Service, explicitly modelled on ours.
Consequently, last year we were able to save £14.3 billion compared with the final year of the previous administration.
In other cases – from shared back office services to improving commissioning skills – we’ve sowed seeds that will take time to germinate, but will help us achieve greater savings in the future.
But while there’s much of which we can be proud, we’ve only really just begun.
In many areas we started from a very low base, and the one area where we perhaps have the most work ahead of us is in tackling fraud, error and debt.
The situation in 2010
Five years ago, central government had only just begun to estimate fraud losses at £17 billion a year and had no accurate estimate of overall error losses or the balance of uncollected government debt.
There was little in the way or accountability or oversight. There was no clear approach to collecting data from across different parts of the public sector.
Nor was there a clear strategy for reducing losses. Government was constantly on the back foot; scrambling to react only once the money was out the door, which in most cases was too late.
We knew that some areas of spending were subject to huge losses and lacked proper anti-fraud provisions, such as tax credits where almost 9% of entitlement was being paid out fraudulently or in error. But in other areas we had very little understanding of the problem.
Fundamentally, departments just didn’t work together to find shared solutions to what were often common shared problems.
It was almost as if government didn’t care, which is outrageous and not correct, although that was the impression that was given. We’re not just talking about numbers on a spreadsheet on a computer somewhere in Whitehall. We’re talking about taxpayers’ money – folding money – that people have worked hard to earn, and that’s been taken out of their pay in order to fund the services they rely on, not to be frittered away with casual disregard.
Progress on fraud and error in this Parliament
So we weren’t prepared to let it continue in that way.
So over the past 5 years we’ve worked to put in place the mechanisms needed to get a grip on fraud, error, debt – the basic processes and structures that were previously so conspicuous by their absence.
One of the first things we did upon coming to office in 2010 was to establish the Fraud, Error and Debt Taskforce.
It brought ministers and senior officials from relevant departments, together with private sector experts, into a single decision-making body.
We also nominated an accountable individual on the board of every department, together with Counter Fraud Champions across government.
They’re all tasked with instilling an anti-fraud culture in their organisations, measuring and reporting the figures, and undertaking risk assessment to ensure policies and programmes are watertight.
When one government department identifies fraudulent activity, details are now shared with a central intelligence body, housed at the National Fraud Intelligence Bureau. They analyse the information, match it to information held on other frauds and issue alerts to help protect other organisations.
We also established common recording and reporting mechanisms. For the first time, it’s now possible to compare like-for-like data from across different parts of government. As a result, we know far more about what the problems are and also about where we lack insight, which is one of the reasons why we’ve introduced random sampling exercises.
As we’ve worked to create this greater oversight from the centre, departments have been taking steps to reduce fraud and error in their own areas of responsibility.
HM Revenue & Customs and the Department for Work and Pensions have been working to reduce fraud and error both in the legacy benefits system and as part of the roll-out of Universal Credit.
A major part of this is the introduction of the Real Time Information System. If someone in receipt of benefits starts to receive earnings or a pension from an employer, we will be able to know that almost immediately. Increasingly, it will mean we can quickly contact them to help them understand the impact on their benefits, reducing the potential for fraud or mistakes and for people to build up debt through overpayment.
Any MP who was there when tax credits were introduced will remember the misery of constituents coming to see us, saying “I’ve just had this letter from the revenue which says I owe them £4,000 and I’ve got to pay it by next week”. These were not people who for the most part who were deliberately trying to swindle the system – it was complicated and maybe they didn’t send the right notification and sometimes it was error on our side. But the stress and the misery caused to these hard-working low-paid people was really unforgivable. But with real time information we can prevent that because we can let people know and stop the debt building up.
Progress on debt
So we’ve also made progress in tackling debt holistically.
Debt is always going to be a sensitive issue and it’s right that we are sympathetic to genuine cases of hardship, which is why our approach is based on prevention and fairness as well as efficiency.
But debt owed to the government currently stands at over £22 billion, we can’t and shouldn’t avoid tackling it.
In December last year, we announced the introduction of the Debt Market Integrator.
Starting from this year, a new company – Integrated Debt Services Limited – jointly owned by the government and a private sector partner, a company we have brought into existence, will provide a single point of access to a wide range of debt management and collection services.
Government has always made use of private debt collection firms, but this new company offers a co-ordinated approach so that government can buy services as a single customer, which means less cost and less hassle for all concerned.
It also enables us to deal with individuals in a more differentiated way. People who can pay but won’t pay should be pursued and we will do that more effectively through one agency. But people who genuinely can’t pay have in the past suffered the stress of having multiple agencies and parts of government, approaching them in different ways. We need to do this in a much more holistic and humane way, without being too hard on those who genuinely can’t pay, but at the same time being more effective at getting the money out of people who can pay but won’t, and who will often play off the various parts of the system against each other.
So fraud, error and debt are now firmly on the government’s agenda, where they should be, and public money is being treated with the kind of respect and care that people expect and deserve.
But where we’ve made progress, it’s taken far too long and we’ve still only scratched the surface of what needs to be done.
We need to do much better. There needs to be better risk assessment. Better loss measurement. Better detection. Better prevention. Better co-operation. Better sharing of intelligence.
Culture and skills in the civil service
The new Chief Executive of the Civil Service, John Manzoni, will help steer the development of a more professional approach.
Central to this is building the necessary skills, which is why we’ve introduced training for civil servants on fraud awareness. To date over 250,000 civil servants – well over half the workforce – have completed this course.
We are using this to promote a culture of ‘check first, pay later’ and the message to public servants is clear:
You shouldn’t be spending taxpayers’ money without being completely satisfied that it’s not being paid fraudulently or in error. And if you spot fraudulent activity, then stop it immediately. Don’t just watch and wait until you think you have enough evidence to prosecute.
On top of general awareness, we will also help those who specialise in counter fraud or error reduction by providing clear standards, guidance and support; this is to increase professionalisation of how we do this.
Ultimately, the fastest and most effective way of tackling fraud, error and debt is to bring it out in the open. Discovering fraud and error needs to be considered a good thing, rather than a source of embarrassment or risk, because once you know about it you can start putting it right. This is a much broader concern than just in fraud. A strong organisation is confident about accepting when things haven’t gone well, because that is the essential condition for resolving it.
This includes taking a strong approach to any internal fraud within the public sector.
It’s a difficult subject. The majority of fraud and error is external to government and most public servants are hardworking, trustworthy and motivated by the desire to help other people.
But we can’t shy away from the issue.
You may have read about the recent high profile case of a city fund manager who became – I quote – “Britain’s biggest fare dodger” for avoiding thousands of pounds of train fares by exploiting a loophole with his Oyster card.
The Financial Conduct Authority consequently banned him from performing any role in the financial services sector for falling below the standards expected.
That’s a robust response and we should take the same approach.
In the past it has proved difficult to bring all investigations to a satisfactory conclusion. This is something that I know our own fraud investigators feel strongly about.
So I can announce today that in future we will take a zero tolerance approach. No investigation will be stopped without the agreement of the permanent secretary; people will be investigated and brought to account even if they resign or move jobs.
We’ll also develop a central register of individuals who’ve had sanctions taken against them for fraud or dishonesty and I have asked officials to ensure those dismissed for fraud will be barred from returning to work anywhere in the public sector for a period of five years.
We’re sending out a clear message: If you’re a public servant and defraud the taxpayer or your employer, you will face the consequences. We are determined to protect the interests of the public – and, for that matter, the good name of the civil service and public servants as a whole. It is wrong that the vast majority of honest hard-working public servants should be sullied by the sense that there aren’t consequences for the few individuals who transgress.
We also need to look more closely at the money government pays out each year through grants – which last year totalled £139 billion.
It’s clear from our research that the system we inherited lacked rigour and we are taking action to address this.
Lack of rigour inevitably masks inefficiencies and leaves grant making open to fraud and error. In fact, we estimate – and it’s a conservative estimate – that 1% of grant money is lost in this way.
Just because government pays this money through intermediaries doesn’t absolve it of responsibility. Every penny of taxpayers’ money matters.
So we’re putting in place a consistent cross-government approach to ensure grants are managed with the same discipline as you’d expect for any other kind of financial or commercial activity.
We’re currently setting standards, designing training and establishing the tools to enable civil servants to keep track of grants through every step of the process, ensuring money is paid to the right people and that they deliver what they’ve been paid to do.
It’s also our ambition to streamline how grants are administered, for instance by introducing a single website for all grant applications, by sharing payment services and making more use of digital technology.
Counter Fraud Checking Service
So I’ve outlined some of the ways we must increase our efforts. But as with so many areas, we have to recognise that government doesn’t have all the answers.
Plenty of other organisations have considerable experience dealing with fraud and error and there’s a huge amount we can do to learn from each other and support one another.
So we must continue our work to design a Counter Fraud Checking Service.
The idea is not a complex one. We want to bring together information on known frauds from banks, insurance companies and government, to help public and private sector organisations make better informed decisions on the eligibility of applicants.
To date we’ve undertaken 3 exercises with partners, and each one has taught us more about the differing nature of fraud, and the different responses from each sector. We are using this data to help inform our business case.
What these exercises have proved beyond any doubt is that government and private sector firms are often defrauded by the very same people.
Fraudsters do not confine their activities to convenient organisational boundaries, and nor should we. For too long our defences have been fragmented.
This work is complex, and it takes time, but my message today is that government is committed to working with the private sector to develop a really strong united front. So please keep working with us, because the closer we co-operate and the more intelligence we share, the better our anti-fraud measures will be.
And another very welcome development over the last year, which is coming to fruition, is forging a single integrated internal audit service for central government. This will both strengthen it and make it more consistent. I was surprised to find that internal in this context was held to mean internal to the department, but it shouldn’t be, it needs to be internal to the government. A single integrated service will add strongly to our effectiveness in assessing the risk much more holistically and helping to drive out fraud and error.
In conclusion, public spending restraint isn’t going to disappear any time soon and the public sector must continue to deliver more and better services for less money.
Every penny counts, which is why tackling losses to fraud, error and uncollected debt is absolutely crucial.
Our work over the past few years has established the oversight and structures to help us do this and there are already some pockets of good practice. But this is a start and we’ve not gone nearly fast or far enough.
We should be tackling fraud, error and debt as a matter of course, not just because ministers suddenly demand it; and departments should be working together by default rather than by exception.
As one civil servant who works as a fraud investigator for the DWP in Cornwall recently put it: “It’s not glamorous but I feel we do a necessary job that ensures benefits, wherever possible, are given to those that need it.”
He’s right – it’s about ensuring public money gets where it’s needed most. Spending people’s money with the same care and consideration as we would our own.
There’s a great deal of work ahead of us – but it really does matter. So thank you to all of you, very sincerely, engaged in this great work.