The Cabinet Office cited fraud and error costing the public purse up to £30 billion a year to justify a new power ordering banks to pay it directly from people's accounts. Its impact assessment expects that power to recover £53.7 million, over ten years.
Estimated reading time: 6 minutes
In short. The Public Sector Fraud and Error (Recovery) Regulations 2026 came into force on 14 July, giving the Cabinet Office the power to order a bank to pay money straight out of a personal or business account, no court order needed first [1]. The instrument's own explanatory memorandum justifies the wider Act behind it by citing the National Audit Office's estimate that public sector fraud and error costs between £5 billion and £30 billion a year [7]. Three paragraphs later, the same document puts the expected yield of these specific measures at "£53.7m over ten years" [7]. The guidance ministers promised would be on GOV.UK "in September 2026" is not there as this piece was checked, and the decision to build the power this way rests on eight consultation responses [7]. Three documented mistakes: four stars.
A correction slip published this month is what surfaces this instrument at all: a one-line fix to regulation 5(2)(a), "reasons on which" to "reasons for which," dated September 2026 [8]. The regulations it corrects came into force ten weeks earlier, on 14 July 2026, made under the Public Authorities (Fraud, Error and Recovery) Act 2025 [1]. They give the Minister for the Cabinet Office the machinery to issue a "direct deduction order": a notice to a bank requiring it to pay the Cabinet Office out of an account, either as a one-off lump sum or as recurring instalments, and a parallel power to order an employer to deduct from someone's earnings instead [1]. These are new powers for the Cabinet Office and the Public Sector Fraud Authority (PSFA) specifically, used to recover fraud, fraud-related error and unpaid civil penalties from cases the PSFA has investigated on behalf of other public bodies; DWP and HMRC are excluded and already use comparable powers of their own [7].
£30 billion problem, £53.7 million answer
The memorandum's own account of why this power exists opens with scale: "Fraud against the public sector is a significant and continuously evolving challenge. In 2023/24, the National Audit Office estimated that public sector losses to fraud and associated error were between £5bn-£30bn outside of tax and social security" [7], a figure drawn from the NAO's own published overview [9]. That is the justification offered for the Act these regulations implement.
The same document later states what the regulations themselves are expected to achieve. Under "impact on the public sector," it says plainly: "these measures will help to reduce fraud against the public sector and support the expected recovery of £53.7m over ten years as outlined in the impact assessment" [7]. £53.7 million over a decade is £5.37 million a year: against even the low end of the £5 billion figure cited two pages earlier to justify the wider Act, it is a rounding error. Both numbers come from the same six-page document, cited to the government's own sources in both cases. The gap between the scale of the problem invoked and the scale of the fix this specific instrument delivers is not a discrepancy between rival estimates; it is the document contradicting the weight of its own opening argument with its own closing figure.
The guidance that was due this month
Paragraph 8.1 of the memorandum makes a specific, dated commitment: "Guidance on the PSFA's use of DDOs and DEOs will be made publicly available on GOV.UK in September 2026. The guidance will be routinely shared with those subject to, or required to carry out, such orders" [7]. As this piece was checked, the PSFA's own organisation page on GOV.UK, sorted by newest publication, lists nothing matching that description [10]. A site-wide GOV.UK search for "direct deduction order," also sorted newest first, surfaces DWP's separate Direct Deduction and Disqualification from Driving Orders code of practice, made under the same Act for benefit-fraud cases, but nothing from the PSFA [11]. A power that has been usable since 14 July has now gone through more than two months of that use with the guidance to accompany it, promised for this month, absent from the place it was promised to appear.
A consultation of eight
The PAFER Act required a targeted, non-public consultation on four specific regulatory questions before these rules were made: how notices and orders are given, the duties banks owe before and during a deduction order, and the administrative costs a bank may recover [7]. Run jointly with DWP between 2 March and 17 April 2026, that consultation drew eight responses in total, "of which five were from the debt advice sector and three were from the finance sector" [7]. Those eight organisations' feedback did prompt real changes, the memorandum says, including how account holders challenge an order and clearer rules on what a bank may charge [7]. But the design of a mechanism that reaches directly into a personal bank account, ahead of a court ruling on the underlying debt, was shaped by a closed exchange with the sectors it operates through, not a public one with the account holders it applies to.
The claims, tested
| The memorandum's own words | What the same document shows | Verdict |
|---|---|---|
| Fraud and error cost the public sector "between £5bn-£30bn" a year, cited to justify the Act [7] | "These measures will help to reduce fraud... and support the expected recovery of £53.7m over ten years" [7] | The instrument's own expected yield is a fraction of a percent of the problem it is justified against |
| "Guidance... will be made publicly available on GOV.UK in September 2026" [7] | No such guidance appears on the PSFA's organisation page or in a site-wide search, ten weeks after the power itself took effect [10] [11] | The promised publication has not happened |
| "The PAFER Act contains important safeguards for the use of these recovery powers" [7] | The safeguards are real (below), but the decision to build them this way rests on eight consultation responses [7] | Genuine protections, thinly tested before being fixed in law |
The mistakes, counted
The instrument's own cited scale of the problem dwarfs its own cited scale of the fix (1). The memorandum invokes the NAO's £5 billion to £30 billion fraud-and-error estimate to justify the Act, then states the specific measures in this instrument are expected to recover £53.7 million over ten years, roughly £5.37 million a year.
The guidance promised for this month is not published (2). Paragraph 8.1 commits to GOV.UK publication "in September 2026." As checked, it is not there, more than two months after the power itself came into force.
The power was shaped by a consultation of eight (3). A statutory but non-public consultation on how banks give effect to these orders drew five debt-advice-sector and three finance-sector responses, for a mechanism that lets government reach directly into a personal account.
Credit where due
The regulations themselves are careful in places the memorandum's rhetoric does not have to be. Benefits, disability payments, guaranteed minimum pensions and working tax credits are explicitly excluded from the amount a bank can be ordered to deduct from a personal account, and from what counts as "earnings" under a deduction-from-earnings order [2] [3]. Deduction rates rise on a sliding scale by account balance or income band, from nil up to 40% depending on the amount and whether fraud is involved, rather than a flat rate applied regardless of means [4]. The fees a bank or employer can charge the account holder for processing an order are capped at specific, modest amounts, the lesser of £10 a deduction or £40 a month for a bank, £55 for a lump sum, £1 a pay day for an employer [5]. Money is not released to the Cabinet Office while an appeal is live: the regulations pause that payment until any appeal under the Act is concluded [1]. And the instrument carries a genuine review clause, not a discretionary one: the Minister must publish a report on how the power is working within five years of it starting, and every five years after that [6].
Verdict
Four stars, from three documented mistakes. The mechanism these regulations build is careful about protected income, proportionate about deduction rates, and capped about fees; none of that is in dispute. What the same paperwork does not survive is its own numbers side by side: a headline justification pitched at billions and a headline yield pitched at millions, a publication date for guidance that has passed unmet, and a consultation of eight deciding how a power that reaches into personal bank accounts would actually work.
Sources
- legislation.gov.uk, "The Public Sector Fraud and Error (Recovery) Regulations 2026" (UK Statutory Instrument 2026 No. 668, made 17 June 2026, in force 14 July 2026, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/made
- legislation.gov.uk, regulation 7, "Calculation of the relevant amount" (SI 2026/668, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/regulation/7/made
- legislation.gov.uk, regulation 17, "Interpretation of 'earnings'" (SI 2026/668, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/regulation/17/made
- legislation.gov.uk, regulation 8 and Schedule 1, "Maximum amounts deducted by direct deduction order" (SI 2026/668, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/regulation/8/made
- legislation.gov.uk, regulation 13, "Administrative costs" (SI 2026/668, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/regulation/13/made
- legislation.gov.uk, regulation 19, "Review" (SI 2026/668, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/regulation/19/made
- legislation.gov.uk, "Explanatory Memorandum to the Public Sector Fraud and Error (Recovery) Regulations 2026" (Cabinet Office, PDF, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/pdfs/uksiem_20260668_en_001.pdf
- legislation.gov.uk, "Correction Slip" to SI 2026/668 (PDF, September 2026, checked 23 September 2026). https://www.legislation.gov.uk/uksi/2026/668/pdfs/uksics_20260668_en_001.pdf
- National Audit Office, "An overview of the impact of fraud and error on public funds for the new Parliament 2023-24" (PDF, November 2024, checked 23 September 2026). https://www.nao.org.uk/wp-content/uploads/2024/11/fraud-overview-2023-24.pdf
- GOV.UK, "Public Sector Fraud Authority" organisation page, sorted by newest publication (checked 23 September 2026). https://www.gov.uk/government/organisations/public-sector-fraud-authority
- GOV.UK, site-wide search for "direct deduction order," sorted by newest (checked 23 September 2026). https://www.gov.uk/search/all?keywords=%22direct+deduction+order%22&order=updated-newest