An influential Commons committee has today called on the Ministry of Justice to impose a comprehensive ban on referral fees and tougher penalties for breaching data protection laws.

A report published by the House of Commons justice committee concludes that referral fees often reward illegal behaviour, from individuals stealing data to companies breaching section 55 of the Data Protection Act, which covers the disclosure of data.

Penalties for breaching data protection rules should not be restricted to fines, say the MPs, who urge the Ministry of Justice to allow custodial sentences.

The report draws attention to the recent case of a nurse who provided patient details to her partner who worked for an accident management company, where the fine was limited to £150 per offence.

‘It is clear to us that the current penalties for a section 55 offence are inadequate,’ the report says. ‘If people can make more money from a single offence than the fine that would be imposed for such an offence, then there is no deterrent.’

The committee heard evidence from the information commissioner, Christopher Graham (pictured), who said that even if insurance companies put a clause in the small print of policies granting permission to pass data to lawyers, the practice might still be illegal.

The report welcomes the government’s commitment to ban referral fees, but says the ban should not be limited to personal injury cases. ‘Banning referral fees, together with custodial sentences for breaches of section 55 of the Data Protection Act, would have the twin effect of increasing the deterrent and reducing the financial incentive for these offences,’ it adds.

During his evidence, Graham told MPs he wanted more powers to force audits of insurance companies and personal injury firms, to search out potential breaches of data protection.

He told the committee: ‘We are trying to find out from the Association of British Insurers what they have to say about [allegations around referral fees] and frankly they are not being very helpful at the moment.

‘This is where I am frustrated, that I do not have the power to inspect. We have invited a number of insurance companies to undergo voluntary auditing and, surprise surprise, they are not interested.’

Justice minister Lord McNally said the MoJ has organised a working group to look into the use of personal data in connection with referral fees.