HL Deb 15 July 1996 vol 574 cc724-32

10.06 p.m.

The Minister of State, Department of Social Security (Lord Mackay of Ardbrecknish)

My Lords, I beg to move that this Bill be now read a second time.

The purpose of this Bill is to provide for the introduction of a measure to amend Sections 71(2) and 71(5) of the Social Security Administration Act 1992, the need for which has arisen following a decision by a Social Security commissioner in a recent appeal case.

The Bill is not a contentious one. The legislation before the House is not for the purposes of amending the direction of policy, but to enable this Government to maintain a longstanding and reasonable practice which has been seriously undermined by the commissioner's decision. The Bill has been motivated by the need to provide legislation for continuing the very practice which this and previous administrations have followed since the Labour Government introduced the National Assistance Act in 1948. While there is little doubt that the commissioner's decision is correct in its interpretation of the statute we have concluded that the Department of Social Security is unable to live with the implications of that decision which has meant that, as a consequence, we must amend the legislation in order to uphold the current practice.

The commissioner's decision has effectively made it impossible, in the short term, to recover new overpayments of social security benefits from claimants who have—whether fraudulently or otherwise—misrepresented the facts of their case or failed to disclose details or changes of personal circumstances which have an impact on the amount of benefit to which they are entitled.

The practice, which has been followed by the Department of Social Security for many years, under Labour Governments as well as Conservative Governments, is a perfectly reasonable one. When an overpayment has been identified the appropriate adjudicating authority corrects the amount of award being paid immediately and, at a later date, will reach a decision on the amount of the overpayment and whether or not it is recoverable. Handling this process in two separate stages is a sensible and practical way of proceeding, but in so doing the commissioner has decided that we are not acting according to the statute and must, as a consequence, correct the award and reach a decision on the amount and recoverability of the overpayment concurrently as part of a single process. Failure to do so will, in many cases, lead to the loss of the right to recover the overpayment.

Perhaps I may illustrate by using a hypothetical example. Let us assume that a claimant has been awarded income support on the basis that he or she is without work. If it is later discovered that the claimant has in fact been working and has had earnings sufficient to warrant a reduction of the amount of benefit he or she is legally entitled to then an overpayment has most probably occurred. The amount of award in payment can, of course, be amended to the correct amount immediately to take into account the changed circumstances, but a decision on how much overpayment has been made and whether or not it is recoverable may require further evidence which is not always readily available. It may be necessary, for example, to approach an employer to verify details of earnings and hours worked, and in some cases we may even need to visit that employer to obtain this evidence. Evidence may also be needed to establish whether the claimant deliberately misrepresented the facts or to clarify the particular circumstances which gave rise to a duty to disclose.

In any system there will always be a minority of people who do not play by the rules. I must emphasise that this Bill is not introduced with the specific intention of counteracting fraudulent claims for benefit but with, as I have already stated, the intention of maintaining the status quo of current practice. However, this Bill does serve to protect our rights to recover public money paid erroneously through claimants' misrepresentation and in some cases that misrepresentation will be deliberately fraudulent. Your Lordships will, of course, be gratified to hear that by far the more usual reason for overpayments occurring is due not to fraudulent misrepresentation but to claimants' errors or oversights concerning what it is their duty to disclose. Having said that, however, if this legislation is not carried we are effectively endorsing what will amount to little more than a charter for fraud which leaves our social security system exposed to that element who will deliberately commit acts of fraud knowing that in most instances we shall be unable to recover that money which has been criminally obtained.

The Department of Social Security considered with utmost care the options available to it which would avoid the need for bringing legislation before this House. Legal advice has been that there are no sensible grounds on which to appeal against the commissioner's decision. We have considered whether the decision could be implemented through operational means but have concluded that this cannot be done except at prohibitive cost.

The financial implications and savings arising from this Bill are not trivial: in 1995–96 more than £122 million was recovered from benefit overpayments. In the current financial year we expect to identify £135 million of recoverable overpayments on income support alone. Each month that passes without this legislation in place means a significant loss of recovery of public funds which it is our obligation to avoid. In addition, without this legislation, the necessary changes in working practice to ensure that we retain the right to recover overpayments would increase the Department of Social Security's administrative costs by about £30 million in the first year and by around £25 million in each subsequent year.

However, such a solution could not be implemented immediately, indeed it would take nine months to realise and in that period we would lose approximately £100 million of recoverable overpayments. These costs would arise through the necessary restructuring of the working practices of the Benefits Agency, substantial redesign of the income support computer system and the consequent massive retraining programme. It cannot be just that the taxpayer should bear these costs. I commend this Bill to the House and I beg to move.

Moved, That the Bill be now read a second time.—(Lord Mackay of Ardbrecknish.)

10.13 p.m.

Baroness Hollis of Heigham

My Lords, we shall not oppose the Social Security (Overpayments) Bill. I promise the Government that after two such events in one evening, we do not propose to make such support or abstention a habit.

On this side of the House we accept that overpayments through misrepresentation—that is, through fraud rather than error—should not be tolerated. We accept, as the Minister outlined, that it would be difficult to compress the two decisions into one; that is, the fact of overpayment and its correction and the amount to be recovered. We accept that it is difficult to do that in one stage in view of staff implications and the problems for the computer system. We accept that it would probably make it more difficult for the claimant to appeal. And, as the Minister explained, because of the court cases, we need primary legislation to remedy the situation. Otherwise, the Government may face overpayments of £100 million which are unrecoverable. I am sure that we would all agree that that money should be spent more appropriately elsewhere in the social security system.

We believe that having a two-stage process may very well be beneficial to the claimant as well as to the officer dealing with the claim, rather than seeing both steps compressed into one. However, I have some slight concern about how this may operate in practice. In the other place a distinction was drawn, which was certainly convincing to me, between three kinds of error. The first is innocent misrepresentation—a straightforward error, misunderstanding or whatever. The second I would describe as negligent misrepresentation, to which I shall return. The third I would describe as a fraudulent representation. I believe that I am using the language which the Minister used in the other place. Clearly, innocent misrepresentation is where someone has failed to understand what the forms require and has simply made an error, perhaps by way of memory or whatever.

However, what I am rather more worried about is the border-line between negligent and fraudulent misrepresentation. As I understand it, at present someone may sign a form and neglect to supply appropriate information which may lead to an overpayment based on negligence. He may then face a huge bill for recovery even though he has spent the money in good faith.

Can the Minister say whether the department expects to make any distinction in its quest to recover overpayment between those three forms of misrepresentation; namely, the innocent, the negligent and the fraudulent? In other words, will the debts be topsliced? How will recovery operate? Will it be a small sum topsliced? How will it stand in terms of the priority of other debts—for example, repayments to the social fund or to other utilities? Further, how long will it go on? Will it be any different from recovery mechanisms where the overpayment has been due to departmental error as opposed to innocent misrepresentation by the claimant?

As I said, we do not oppose the Bill. We recognise that government need to correct a situation and that that correction may well be to the benefit of the claimant. However, we shall be glad to receive some assurance in that respect, especially where the misrepresentation has not been fraudulent. Of course, it may have been negligent; but it was not fraudulent. Such situations often concern people whose literacy skills may not be high or who may be fairly old or frail and seeking disability payments or the like. We need some reassurance that such claimants will not suddenly, out of the blue, receive a bill for a huge sum of money which they would find very difficult to make good in a reasonable time and in a reasonable way. I hope that the Minister can at least reassure us to that extent.

10.17 p.m.

Earl Russell

My Lords, I believe the Minister knows that, when I think he is right, I am prepared to say so. This strikes me as a reasonable Bill to meet a necessary objective. None of us is in favour of money which has been obtained by fraudulent means, by failure to disclose or indeed by misrepresentation, being irrecoverable. If that was the effect of the ruling of Commissioner Mesher, then that effect needs correcting. I take the Minister's point about the need to gather evidence in order to understand and calculate the extent of the overpayment that has taken place. That was a powerful point in favour of a two-stage process and it is well taken.

However, I should like the Minister to consider a point which relates somewhat to those just raised by the noble Baroness; namely, the difference between misrepresentation and failure to disclose. In principle those are two different cases. The threshold of proof which the department carries is different for those two cases. Therefore, can the Minister confirm that, under the Bill, he will ensure that the department is careful not to proceed on misrepresentation when failure to disclose might be more appropriate?

The Minister is asking us to reverse a court judgment. It is not the first time this month that he has asked us to do so. I am taking very different attitudes to the two cases. Therefore, it might be worth thinking just for a moment about the general principles involved in the reversing of court judgments. First, we should all agree that it is something which should be done reasonably sparingly. Secondly, it is best when it can be done, as is the case on this occasion, by all-party agreement reached behind the scenes before the Bill comes forward. I should like to express my gratitude for the fact that that procedure has been followed on this occasion.

When there is a technical difficulty in the way of a policy intention which all parties agree to be proper but which, nevertheless, cannot be pursued for a purely technical and drafting reason, I believe that a reversal of a judgment need not cause us any misgivings. I believe that to be the case in this particular instance. However, that is a very different case from one where the court has found the policy intention itself to be unlawful. A case where that is found is one which must involve, at the very least, bad drafting. Also, reversal of court judgments in areas where there is very strong party disagreement is again something to be undertaken sparingly. It is a subject about which we all need to think a bit further. But certainly, whatever general principles we arrive at, this case would be likely to be within them.

I have read with a great deal of interest the ruling by Commissioner Mesher which has given us the subject of this Bill. I have no doubt it was correct. I understand that the Government have received advice that it would not be right for them to consider pursuing an appeal. But that case is an interesting one. I do not always agree with everything that Mr. Frank Field says, but on this occasion the circumstances of the case must make us think about some of the points he has been making.

It is a case of housing benefit, where Ms. Mustard, the subject of the case, had been getting money from her brother towards the payment of her rent, trying to scrape money together to pay her brother back and not on all occasions succeeding—just the sort of thing one might have expected and just the sort of sharing of responsibility between members of a family which in other circumstances the Government like to encourage. But, inevitably, it gave rise to a problem on this occasion because it brought her over her applicable amount for income support.

We have here two contradictory policy objectives, and in any long-term review of the social security system, those two objectives will need thought. One of them is the desire—inevitable and necessary in means testing—to ensure that money goes to people in proportion to their means. The other is the desire not to discourage people from helping each other out. I must admit that I cannot yet altogether see my way round that dilemma. But I wonder whether slightly more gentle housing benefit tapers might have solved some of the problems which gave rise to that case in the first place. There is a problem here. I do not see the solution to it and I hope that all of us will give it further thought.

I also hope when we come to Committee stage of this Bill to put down three small amendments. I understand that the Minister and his officials have only just received notice of these. That is the result of a misunderstanding for which I must make my apologies to the Minister and, through him, to his officials.

These three amendments would provide, first, that overpayments can be recovered only over a period of 12 months. That is the same rule that applies to people claiming arrears of benefit. It is a case of the principle that what is sauce for the goose is sauce for the gander. It would be a reasonable, equitable provision and would make the operation of this provision more manageable, more practical and perhaps more humane than it would overwise have been.

The second amendment, which is perhaps a more interesting one and will perhaps take a little discussion, would be to reverse the judgment in the case of Jones v. Chief Adjudication Officer in 1993; and if reversing one judgment, why not consider reversing another? That is the case that hangs on the point I have touched on before, that the threshold of proof for the department in misrepresentation is a great deal lower than it is in failure to disclose.

What arose from the judgment in Jones is that a person may be found guilty of misrepresentation for failing to disclose a fact of which he was quite unaware. Now that really is a matter of hard cases making bad law. It seems to me that if you are not aware of a fact, then in sheer common sense you cannot be required to disclose it. Maybe when it comes to light it may affect the level of your benefit. Indeed, it should. But we can only disclose what we know. That amendment would also deal with the problems of disclosure in cases of mental impairment of various sorts. It is difficult enough for most of us to find our way through the labyrinth of social security benefit regulations, but if one is suffering from severe mental impairment of one sort or another it can be difficult indeed.

The third amendment I hope to put forward is a purely technical one about the vires for appeal. Now that we are to have a two-stage process it will be inevitable, as Commissioner Mesher pointed out in paragraph 10 of his ruling, that any appeal will have to encompass both stages of the process. It is my understanding that that will require a further amendment to the legislation simply to make that possible, because one cannot appeal against the requirement of overpayment without appealing at the same time against the review which gave rise to the requirement. That, I think, is a simple, practical point. I hope it will so appear to the Minister. With those provisos, I am happy that this Bill should go forward.

10.25 p.m.

Lord Mackay of Ardbrecknish

My Lords, I am grateful to the noble Baroness and to the noble Earl for their general support and welcome for the Bill. As I believe I indicated, it is not a contentious Bill. However, I have learnt to know better than even to think for a moment that one contentious Bill will necessarily make a summer, so to speak. There will be others. The Bill we are discussing is indeed not contentious. All of us who are concerned with good government and with the proper administration of the department understand the need to ensure that if overpayments are made because of misrepresentation, or, even worse, because of fraud, the department, and hence the taxpayer, can claw back the money lost due to that misrepresentation.

I shall try to answer some of the points that were made by the noble Baroness and the noble Earl. Decisions on whether an overpayment is recoverable are, of course, made by an adjudication officer. In reaching a decision he or she must be satisfied that there has been—fraudulently, or otherwise—a misrepresentation, or failure to disclose a fact. He decides on the amount of overpayment and who made the misrepresentation, or failed to disclose. When an adjudication officer determines that, he also determines whether the Secretary of State is entitled to recover the overpayment, and from whom the recovery should be sought. The Secretary of State then decides whether the repayment is required, and the method of recovery where no suitable offer is forthcoming.

I listened with interest to the noble Earl's suggestion as regards tabling three amendments. It might be sensible not to discuss those this evening if we are not to fall into the trap that we fell into as regards the other Bills which have just finished being a source of disagreement between us. We seemed to talk about the same subject on three, if not four different occasions. I now turn to the vires for the appeal, and what one can appeal against, and how the two appeals relate to each other; that is, the appeal against the decision that there has been an overpayment, and the separate issue, which concerns the decision as to whether it is an overpayment which should be recovered. We can perhaps discuss that matter when the noble Earl moves his amendment. We can also discuss the interesting case of Jones v. The Chief Adjudication Officer. I look forward to discussing those matters.

The noble Earl referred to a third amendment. He discussed whether or not we should stipulate that recovery of the overpayment should occur over at least a 12-month period. I believe that was what he said. We can discuss that matter too. The noble Baroness referred to my next point. The standard rate of recovery from income support is normally £7.20. However, where the overpayment has been caused through fraud, the level is raised to £9.60. No recovery rate is specified for other benefits but guidance suggests that up to one-third of the rate of personal benefit should be deducted. Overpayments below £25 are treated as small overpayments and recovery is not normally pursued as it is estimated that each overpayment recovery, including the adjudication officer's decision, costs at least £25, making the recovery not cost effective.

Baroness Hollis of Heigham

My Lords, is that £7.20 through to £9.20 of the personal allowance? I should know this point but perhaps the Minister will forgive me. Is that the personal allowance only of the adult concerned? There is no proportional top-slicing from the children's benefits, for example. I am trying to protect the position of the children.

Lord Mackay of Ardbrecknish

My Lords, I understand that. The figures I am looking at show the maximum reduction from income support in IS cases. I do not know whether that answers the noble Baroness's question. If indeed the figures relate to the personal rate of income support to which the noble Baroness refers, it is £7.20. I imagine that if someone has income support for themselves and their children, he or she has a totality of income support and the maximum is as I have suggested: £7.20 or £9.60. However, I will check on that point before the next stage.

The noble Baroness asked me about the discretion. If recovery is likely to be detrimental to the health or welfare of the debtor or a member of the family, then the Secretary of State exercises discretion to abandon or reduce the rate of recovery. Recovery is automatically waived in the following circumstances: if income support is in payment and if the claimant is 70 or over and is senile or has long-term physical or mental illnesses and does not have capital in excess of £500 and has no disregarded income. The Secretary of State also has the power to waive recovery of an overpayment in exceptional cases where recovery would be harsh or unjust.

Normally, a person is invited to make a voluntary offer to repay. If no offer is forthcoming, or any offer that is forthcoming is not acceptable, the Secretary of State may then make compulsory deductions. Those deductions usually start 28 days after the adjudication officer's decision, so as to allow the claimant time to consider appealing against the overpayment decision. The claimant has the right to appeal for up to three months after the decision is made.

On the question of the order of priority on deductions from weekly entitlement, the recovery of overpayment is tenth on the list. It comes after a fair number of other deductions: mortgage interest direct; housing costs; service charges for fuel and rent; fuel debts; water charges; community charge/council tax; repayment of fines; child support maintenance; and social fund loans. Recovery of overpayments is at the bottom of the list. I hope that that answers the direct question that the noble Baroness put.

Baroness Hollis of Heigham

My Lords, am I therefore right in believing that, if it comes to that, it is not actually repaid, because there is a general cut-off point beyond which no more top-slicing may occur?

Lord Mackay of Ardbrecknish

My Lords, if someone is making some of the payments I listed above and the recovery of overpayments reaches the total amount that we allow for deductions, then the recovery of overpayments will have to wait for a better day; or, depending on its size, on the decision of an adjudication officer, the recovery may be waived.

The general policy on recovery is well-established. If an overpayment is determined to be recoverable, we seek to recover it without causing undue financial hardship. Discretion arises on the implementation of this policy, and the Secretary of State may decide not to pursue his right to recover if representations are made either by the customer or by someone on his or her behalf.

Each case is judged on its merits. As a general guide, where recovery of the overpayment is likely to be detrimental to the health or welfare of the debtor, as I explained in one particular example, or is considered excessively harsh or unjust, it is likely that it will be abandoned or mitigated in some way. The policy is pursued in a sensitive way. However, as we have all agreed, it is right and proper that it should be pursued in those cases where it can be and where it is quite clear that fraud or misrepresentation has taken place.

I hope that I have answered the points raised. I look forward to what I trust will be a short Committee stage.

On Question, Bill read a second time, and committed to a Committee of the Whole House.