Pensioners could soon see their bank accounts monitored under new Labour plans to claw back billions in benefit fraud and errors.
The Public Authorities (Fraud, Error and Recovery) Bill, set to return to the House of Lords this month, grants the Department for Work and Pensions unprecedented authority to access banking information for all social security recipients.
The plan is part of a Government drive to claw back £9.6billion in benefits savings by 2030.
It will affect around 1.36 million pensioners who were claiming pension credit in February 2025. Applications for the benefit have jumped sharply since Labour cut back winter fuel payments last year, with 117,800 approvals made by February.
Official figures show £9.5billion was lost in 2024 through benefit overpayments and fraud, equal to 3.3 per cent of the total welfare bill.
Under the new rules, banks will have to hand over pensioners’ payment data to the DWP but will not be allowed to tell customers when their accounts are being checked.
The banking sector has expressed significant reservations about these requirements, with UK Finance describing the implementation as “operationally challenging” for lenders.
Peter Tyler from the trade body cautioned that the proposed legislation “raises the risk of causing unintended harm to vulnerable individuals.”
Under existing regulations, banks report suspicious transactions to the National Crime Agency solely for money laundering concerns, with no current obligation to monitor benefit-related irregularities.
The new framework represents a substantial expansion of banks’ responsibilities, requiring them to identify potential benefit fraud or overpayments amongst their customers without prior experience in this area.
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The Cabinet Office has developed an artificial intelligence system that will examine the banking data supplied by financial institutions to identify irregularities in benefit payments.
Ministers will possess the authority to reclaim funds directly from individuals’ accounts in instances of both fraudulent claims and administrative errors, marking a significant expansion of governmental recovery powers.
The DWP has emphasised that automated systems will not make final determinations, stating that “a human will always make any decisions that affect benefit entitlement.”
These measures follow HMRC’s recent reactivation of controversial direct recovery capabilities, which permit the tax authority to extract unpaid taxes exceeding £1,000 directly from bank accounts.
Last year alone, pension credit overpayments totalled £610million due to departmental errors, with £270million attributed to fraudulent activity
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GETTYLast year alone, pension credit overpayments totalled £610million due to departmental errors, with £270million attributed to fraudulent activity.
Campaign groups have condemned the legislation as an unprecedented expansion of state surveillance capabilities, with Big Brother Watch highlighting that the powers extend beyond fraud investigations to include government administrative errors.
A spokesperson for the organisation stated: “It’s unprecedented because we’ve not really seen this type of generalised financial surveillance on a population-wide scale where there’s actually no suspicion of fraud.”
The TaxPayers’ Alliance has also voiced alarm about the proposals, with John O’Connell warning: “Taxpayers young and old will be deeply concerned about some of the proposals outlined in this bill.”
He added: “Even with strict safeguards, introducing new powers to retrieve cash directly from bank accounts is a seriously concerning step.”
Over one million state pensioners face bank account checks as Labour launches £9.6billion DWP crackdown
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GETTYThe legislation marks the first instance where governmental monitoring extends to entire benefit recipient populations without specific suspicion of wrongdoing.
The DWP has defended the legislation, asserting that “all powers in the Fraud, Error and Recovery Bill are underpinned by a principle of fairness and proportionality, with numerous safeguards and independent oversight in place.”
A departmental spokesperson emphasised the fiscal responsibility aspect, stating: “We have a duty to the taxpayer and this Bill is set to save £1.5bn over the next five years, which together with wider reforms will save £9.6bn by 2030, according to OBR estimates.”
Helen Whately, the shadow work and pensions secretary, accused Labour of “rushing through this legislation to grant themselves sweeping powers without proper checks and balances.”
She argued: “If Labour were serious about tackling real fraud and controlling the welfare bill, they would back our proposals to deal with so-called ‘sickfluencers’ and ensure that claimants are attending face-to-face assessments.”