Legal experts have warned new DWP powers to check claimants’ bank accounts in cases of suspected fraud could wrongly take money out of people’s accounts.
More details have emerged about a Government bill that will allow the DWP to request details of people’s bank information in cases of suspected benefit fraud.
The new measures will allow the DWP to “recover money directly” from the bank accounts of those who owe the department money and “refuse to pay up, despite having the means to do so”. Officials will be able to “request bank statements” to prove people have the funds to pay up.
Ministers say the measures in the bill will save the DWP £1.5billion over the next five years, but law firm Clyde & Co has raised concerns the new powers could wrongly target individuals and even undercut tax revenues, encouraging a “shadow economy”
Damian Rourke, partner in the fraud risk practice with the group, said: “This could spark concerns around privacy for many. Allowing government bodies such access to personal financial information could leave people feeling exposed and contribute to an erosion of public trust.
“Certain groups in receipt of higher benefits payments, such as the elderly, disabled or other at-risk populations, could also be disproportionately affected by these measures, increasing the likelihood of errors and unjust outcomes.”
The legal experts believes the measures will likely be deployed with a focus on Universal Credit, as this has a large number of claimants, with 6.4 million claimants as of January 2024.
Officials could also target people on Jobseeker’s Allowance, Employment and Support Allowance, and Housing Benefit, given these benefits have historically had higher levels of irregularities.
Clyde & Co warned of “serious risks” with the new powers. They said: “Mistakes could leave individuals struggling to meet basic needs, such as paying bills or buying food, causing unnecessary distress.
“Misidentifying accounts or failing to account for a claimant’s circumstances could lead to wrongful deductions, sparking legal battles and emotional upheaval.”
Despite the Government claiming its new fraud prevention efforts will save the taxpayer millions of pounds, the legal team warned the threat of bank account checks could actually cost the exchequer revenue as people move to cash-in-hand for fear of their digital bank statements being interrogated.
Warning of “reduced tax revenues”, the law firm cautioned: “Cash payments create a shadow economy, undercutting businesses operating within the system.
“Informal cash payments often come without legal protections, leaving workers exposed to exploitation, unsafe conditions, and wage disputes.”
The legal experts even said the measures could facilitate more crime, as a cash-heavy economy is more difficult to monitor, with increased risks of money laundering and other illegal dealings.
Secretary of State for Work and Pensions, Liz Kendall, said: “We are turning off the tap to criminals who cheat the system and steal law-abiding taxpayers’ money.
“This means greater consequences for fraudsters who cheat and evade the system, including as a last resort in the most serious cases removing their driving licence.
“Backed up by new and important safeguards including reporting mechanisms and independent oversight to ensure the powers are used proportionately and safely.”
The DWP has assured that it will not have direct access to people’s bank accounts as the powers will only allow it to “request bank statements”.
Offering an alternative to the measures, Clyde & Co recommended that the DWP could work with insurers, banks, and employers to get anonymised or aggregated data, to pick up inconsistencies.
The group said: “These collaborative efforts could paint a more accurate picture of claimants’ financial situations, reducing fraud risks and minimising errors.”
Under the new legislation, banks and building societies will also be required to indicate where there may be a breach of eligibility rules for benefits. The DWP has been asked for comment.
