The UK banking industry is worried about the impact of new DWP bill: Public Authorities (Fraud, Error & Recovery) Bill. The related press release from the DWP can be obtained from the gov.uk website: DWP press release - fraud crackdown.
UK Finance are a trade body representing the UK financial services industry. In a comment to the BBC, they recently said "the plans could undermine the banks' own efforts to protect vulnerable account holders."
Banks have reportedly been pushing back against the moves privately and now that the bill is likely to go ahead, raising their issues publicly. The UK government want the banks onside to help push economic growth, but this release of information shines a light on the difference of opinion between government and the banks and how much power the banks may ultimately have in this process. The pushback criticises the new powers granted to the DWP and indicates how the UK government faces opposition over this strategy.
DWP Powers
The current powers of the DWP to reclaim debts are:
- reclaim through welfare payment reductions.
- reclaim through chasing for owed money.
- reclaim through PAYE.
In terms of bank account information, they can obtain account holder information (name, date of birth, and account number) where there is suspicion of fraud, but not in cases of incorrect payment.
The proposed new powers would include obtaining bank records, taking money from accounts and disqualifying drivers. Once major concern of the powers is that they bypass the court system.
The DWP say this allows them to reclaim money from those no-longer receiving benefits or working and eases pressure on the courts. Opposition to this is that the DWP can act without recourse. Deciding to take the money without a hearing or legal defence.
Theses will take the form of "direct deduction orders" compelling banks to pay back benefits debt from available funds. The banks would also charge the account owner a fee to cover the administration costs involved.
Before the DWP can issue an order, they would obtain 3 months of bank statements and need to consider whether such deductions would cause the account holder to suffer: "hardship in meeting essential living expenses."
Opposition from UK Finance
Daniel Cichocki, the Economic Crime & Policy Strategy Director, for UK Finance states the new powers "creates risks for vulnerable customers, or conflict with existing regulatory and legal obligations" and recommends the UK government focuses instead to "prevent fraud and error entering the benefits system in the first place."
UK Finance also points to the Financial Conduct Authority's (FCA) consumer duty as an area that it believes could be in conflict with the government's plans. The duty, introduced in 2023, set higher standards for consumer protection and gave banks a specific obligation to protect customers who are vulnerable due to their financial situation. Banks that violate these rules could be subject to action by the FCA or the Financial Ombudsman.
The DWP Position
In response, the DWP provide the following information.
In 2024, there was £7.4bn in overpayments due to fraud, £1.6bn due to errors by claimants, and £0.8bn due to errors by DWP. Highlighting that the fraud figure is much larger than overpayments due to errors. According to the DWP, using the powers from this bill they aim to reduce the costs from fraud by £1.5bn, which is around 20% of the monies lost through fraud.
Ultimately, the DWP aim to progress towards a fully-automated system.
In Summary
When it is already difficult to contact a person who understands the issue and can help with it, automating the process of debt recovery directly from a bank account seems like a dangerous precedent.
Given the figure for how much is paid out in error by the DWP, it is safe to assume there are other errors in their assessment process.
This creates a situation where the DWP could under or overpay a claimant, assess an account balance, take money from them - or in error someone else - all without any human interaction. The reaction from the banks is on the face of it, positive and will hopefully lead to transparency and a review of the powers.
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