HL Deb 22 July 1996 vol 574 cc1233-41

6.40 p.m.

Lord Mackay of Ardbrecknish

My Lords, I beg to move that the House do now resolve itself into Committee on this Bill.

Moved, That the House do now resolve itself into Committee.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

House in Committee accordingly.

[The DEPUTY CHAIRMAN OF COMMITTEES (Viscount Allenby of Megiddo) in the Chair.]

Clause 1 [Recovery of overpayments of social security benefit: amendments]:

Earl Russell moved Amendment No. 1:

Page 1, line 7, at end insert— ("( ) At the end of subsection (1), there shall be inserted "; so, however, that in a case where the misrepresentation or failure in question was not fraudulent, the Secretary of State shall only be entitled to recover the amount which is referable to the 12 months immediately preceding the determination.").

The noble Earl said: If the Minister will forgive me, a moment ago he said something to me which was a little unwise. He suggested that we should call it a draw. But the Minister knows the next thing that happens when there is a draw. It is a little late at night for a replay so I hope that we shall not have to have one. And I can assure my noble friend that there is no need for a penalty shoot-out on this Bill. This is an uncontentious, relatively calm part of tonight's business and I am glad that it is so.

The effect of Amendment No. 1 is to provide that the DSS should not be able, except where there is a case of fraud, to recover overpayments over a period longer than 12 months. The Minister knows perfectly well that the DSS has a rule that people who have had underpayments can recover them only for a period of 12 months; indeed, if they have the misfortune to be involved in a test case, not even for 12 months.

I do not maintain that there is anything in the least sacrosanct about the period of 12 months. I can remember some time ago, before the Minister was with us, arguing against that rule. I lost the argument and accepted it. My point is that if a period is stated, it should be the same period for both the DSS and the claimant. That is the principle on which the amendment rests; that what is sauce for the goose is sauce for the gander.

Even if there is not an equal period, there is no case, if there is a variation, for the department being able to recover overpayments over a longer period than the claimant. The Minister may not yet have been able to look at Elaine Kempson's book, Life on a Low Income, published by the Rowntree Trust. I hope that he will have time to look at it over the summer because we shall hear a lot more about it in time to come. The book deals at some length with a subject that I have often called to the Minister's attention; that is, the subject of debt on benefit; the problem of juggling with bills while the debt builds up; the problems of disconnection of water, electricity and so forth with which we are all familiar. It can be a serious problem and the intrusion into that pattern of heavily and barely manageable debt of a large overpayment over a period longer than 12 months can be crippling.

I am not suggesting that anyone who has been guilty of fraud should be spared that penalty. But where they have not it would seem harsh, especially when the department itself does not pay beyond the 12 months. In Elaine Kempson's book, in a study of 74 households on ordinary benefit without penalties, she found that 20 out of 74 seemed to be drowning in financial problems. I see no sense in deliberately thrusting them further under water. I beg to move.

Lord Mackay of Ardbrecknish

The purpose of this amendment is, with the exception of fraudulent or negligent overpayments, to restrict the period of a recoverable overpayment to 12 months from the date on which it is determined that a recoverable overpayment has occurred.

As the noble Earl has said on many occasions, the social security system is complex and difficult to understand—a sentiment with which I agree. The present test of misrepresentation or failure to disclose is relatively simple. To impose a test which required adjudication officers to decide on fraudulent intent or negligence in respect of overpayments going back over 12 months would be to add significantly to the complexity of deciding whether or not overpayments are recoverable. What adjudication officers would have to do is to try and understand the thought processes and knowledge of the person claiming benefit when they failed to disclose or misrepresented a material fact. That would indeed be an extremely difficult and complex thing to do and would provide huge scope for those claimants who were deliberately abusing the social security system to limit their potential financial liability.

In any case, I can see no reason why the period of recoverable overpayments should be restricted to 12 months from the date that a determination is made. The test as applied, that overpayments are recoverable where a claimant has fraudulently or otherwise misrepresented or failed to disclose any material fact, is a reasonable one. It was first introduced by the government in 1948—not of my party—and has been reconfirmed by successive governments in subsequent Acts, none of which restricted the period of recoverable overpayments.

It is important to remember that when people claim benefits they are receiving public money which the taxpayer has worked hard to provide. It is therefore incumbent on claimants to ensure that they have reported everything that they should regarding their claim to benefit. Even where we are dealing with innocent misrepresentation where the claimant knew the facts but failed to report them—and those cases are rare—the claimant has benefited from public money to which he or she was not entitled. It can certainly be argued that asking for the overpayment to be repaid is hard on the claimant, but it is equally hard on the taxpayer—many of whom are not wealthy—if we do not seek to recover the overpayment.

I believe that the Bill as it stands strikes a fair balance between the person claiming benefit and the taxpayer. Even when it is decided by an adjudication officer that an overpayment is recoverable—and there is a right of appeal against such a decision—the Secretary of State can, and does, exercise his discretion where serious hardship would be caused and can waive in whole or in part his right to recover the overpayment.

I hope that, with that explanation and the assurance that the Secretary of State has a discretion which he can exercise where there will be serious hardship, the noble Earl will feel able to withdraw his amendment.

Earl Russell

I was interested to hear the Minister say that it was difficult to judge the existence of fraud. I wish he had said that to the House when he was on his feet about an hour ago. Nevertheless, I concede that what he says is true. And yet, he must also concede that in the ordinary courts of law the question of judging whether or not an intention is fraudulent comes before them almost every day. I agree that it is difficult, but I do not believe that the difficulty is insuperable.

I agree with everything that the Minister said about public money. But he should put into the scale against that the fact that those who are receiving benefits are receiving an entitlement. To deprive people of an entitlement which is also a subsistence is something which ought to be weighed in the scale even against public money. I was wondering whether to ask the Minister for an assurance about the Secretary of State's discretion, which he then gave in the last part of his speech. I think that is all I am going to get out of him but I ask him, when he exercises his discretion, to remember mercy as well as justice. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

6.45 p.m.

Earl Russell moved Amendment No. 2:

Page 1, line 7, at end insert— ("( )The following subsection shall be inserted after subsection (1)— (1A) A person shall only be taken to have failed to disclose a material fact within subsection (1) if—

  1. (a) he knew the fact in question; and
  2. (b) it was reasonable in all the circumstances, including but not limited to his mental state) for disclosure of the fact to be expected of him,
whether or not the failure also constitutes a misrepresentation of a material fact within subsection (1)".").

The noble Earl said: Amendment No. 2 is a rather more technical amendment. It deals with the case of Jones v. Chief Adjudication Officer which came before the Court of Appeal in 1993, though it was not reported until 1994. The amendment seeks to assimilate the threshold for misrepresentation to the threshold for failure to disclose. As the law stands at present, the threshold for misrepresentation is very much lower. Therefore, by using the declaration that all material facts have been reported, the department can assimilate every failure to disclose into a misrepresentation and thus make it easier to prove.

The case of Jones v. Chief Adjudication Officer was a difficult one. I believe that the case itself was correctly decided, but some of the things that were said in the course of it, possibly obiter—not being a lawyer I would not be too insistent on the point—are capable of giving some ground for anxiety. It is entirely reasonable to say that people should not be required to disclose what they do not know. I was a little perturbed by Lord Justice Evans saying that, when a person has misrepresented a material fact, his knowledge of that fact is irrelevant so far as Section 53 is concerned. It is sufficient that there was the misrepresentation, whether the fact was known to him or not".

Most of us can disclose everything we know. I have never found a way of disclosing what I do not know because if I do not know it I do not know that I am failing to disclose it. It seems to be a fairly fundamental objection, which is not to say that it needed to be asserted, as the learned judge asserted it, in order to decide the case of Jones.

Mr. Jones had claimed unemployment benefit but had not received it. He filled in his form correctly at the time. He subsequently received unemployment benefit but failed to disclose that he had subsequently received it. Obviously, he had been incorrectly in receipt of benefits. There were other ways of arriving at the conclusion that he had received a payment that he should not have done and that he should repay it other than that of requiring that he disclose what he did not know. He obviously should have completed the declaration when he received the unemployment benefit and said that he had done so. That is where Mr. Jones's failure lay. It was not in any failure to disclose something that he did not know.

The amendment would also allow people to take into account the mental state of the claimant. For example, one can imagine the existing law about failure to disclose being applied to a patient with as yet undiagnosed Alzheimer's disease. The effects of that could be absolutely catastrophic. So where a person is subsequently discovered to have contracted Alzheimer's disease, it might be reasonable not to insist on recovery of overpayment when they might have failed to disclose a material fact simply because at the moment they were actually incapable of remembering it. That is a point worthy of thought.

The learned judge I have quoted was not the only one who discussed this case. A different line was taken by Lord Justice Stuart-Smith. He made the crucial point that knowledge is not needed in innocent misrepresentation. It is the word "innocent" which is really crucial. Clearly, a misrepresentation is a misrepresentation, whether one knows it or not. But one can argue that if it is an innocent misrepresentation, it should not necessarily—with a person whose income is as low as that of someone on benefit—give rise to the right to require the recovery of overpayment. So in that way I believe that one might reconcile what the two learned judges said, the one with the other. One might perhaps incorporate this amendment into law without actually meaning to reverse the case, which I believe was correctly decided. This amendment would save the day. It would require that people should not be penalised for failure to disclose what they do not know. It is a simple principle and I hope that the Minister will find it acceptable. I beg to move.

Lord Mackay of Ardbrecknish

The purpose of this amendment, as the noble Earl has described it, is to limit the Secretary of State's right to recover overpayments in certain circumstances where it would not have been reasonable to expect the person to have known that a change in circumstances must be reported to the department. In my view the amendment is not necessary. Case law already deals with cases of mental incapacity, illiteracy or educational or linguistic difficulties. Therefore, it would encompass, I suspect, the case that the noble Earl made about Alzheimer's disease. Indeed, perhaps I may go further and give the noble Earl an assurance that the mental state at the time of the claim is taken into account in deciding whether a person had knowledge of a relevant fact. The Secretary of State could decide not to pursue overpayment if Alzheimer's disease was subsequently discovered. No obligation can be imposed to disclose something that a person does not already know and an overpayment arising in such circumstances is not recoverable.

More importantly, case law does not limit consideration of failure to disclose in the way the amendment would do. Rather than benefiting claimants, which I am sure the noble Earl intends to do, it could have the effect of narrowing the interpretation of these provisions as established by the case law over a long period. Even in those cases where the right to recover is undisputed the Secretary of State maintains a power of discretion to waive recovery in whole or in part.

The noble Lord mentioned at length the case of Jones v. Chief Adjudication Officer. I am aware of that case. Perhaps I may suggest to the noble Earl that the latest authoritative position is a decision made in December 1995 by the Court of Appeal in Franklin v. Chief Adjudication Officer. Mrs. Franklin was overpaid income support because there was no disclosure that the interest rates on her mortgage had reduced. The social security appeal tribunal found that Mrs. Franklin had not known of the decrease in her mortgage interest rate. The court determined that the overpayment was not recoverable under Section 71 on the grounds that Mrs. Franklin had not misrepresented a material fact and also that she had not failed to disclose a material fact since the fact was outside her knowledge. I do not particularly want to read out some of the relevant parts of the case, but, if the noble Earl looks at the judgment, which was given on Wednesday, 13th December 1995, it may help with the problem he brings to our attention in this amendment.

Where a person has no knowledge of a fact, there will be no recovery if he either fails to disclose it or misrepresents it. That has long been the position for failure to disclose. The Franklin case, which was decided last December, shows that a person is only required to report a relevant fact of which he has knowledge. There is no misrepresentation if he completes the standard declaration without reporting a fact of which he had no knowledge. With those assurances and with the recommendation of a little light reading for the noble Earl of yet another legal judgment, I hope that he will be able to withdraw his amendment.

Lord Skelmersdale

In answer to the noble Earl's amendments my noble friend has mentioned the Secretary of State's discretion to waive the refund of overpayment either in whole or in part. Surely, there is a third course. It would be helpful to me at least, and, I hope, to the noble Earl, if we can be told that where a substantial sum of money is due to be repaid, this can be done over a period of time and settled in the adjudication.

Lord Mackay of Ardbrecknish

As we are in Committee, perhaps I may respond. The period of time during which the overpayment can be paid back is, in the first instance, a matter for negotiation between the person and the Benefits Agency. If no agreement can be arrived at, there is a limit to the amount of weekly overpayment which can be imposed. If my memory is correct it is £7 and £9—odd if the claim was fraudulent. Obviously, depending on the size of the overpayment, that will have some bearing on the length of time during which the overpayment is made. If it is felt that that would be too much for the person, it can be reduced to a lesser amount as long as the overpayment is made. I think that it is fair to say that the Secretary of State tries to take a reasonable view of repayments.

7 p.m.

Earl Russell

I am grateful to the Minister for that reply. I was aware of the case of Franklin and I am encouraged by the Minister's reading of it. If that is indeed the law, I am satisfied, but I ask the Minister to continue to watch the situation to see whether the cases which caused so much confusion in Jones continue to arise and, if they do, to reconsider whether the law may be in need of clarification.

On the question of mental state, it is not quite so simple. It is clear that a person's mental state is relevant to the question of whether the claimant knew the facts in question, but there is a commissioner's decision—the reference is CA/303/92—which holds that the question is only whether the claimant knew the fact in question, not whether he understood that it was reasonable to require him to disclose it. There are a number of cases of mental impairment—severe brain injury after a road accident comes to mind—where that distinction might be vital. I hope that the Minister can again tell me, as he has on other issues, that he has discretion and that he will exercise it with mercy. Can he help me that far?

Lord Mackay of Ardbrecknish

I am not sure that I can help the noble Earl that far, but I am prepared to say that there have been cases—I am not sure that I can refer to them by name because I have only a code in front of me—where it was decided that a person must be reasonably expected to disclose a material fact. If the person may not reasonably be expected to know of the material fact because of his or her mental state, there is no failure to disclose.

I do not think that we are far apart. However, as we cannot continue to bat previous cases back and forth, I hope that the noble Earl will accept that I am content to consider what he has said and to write to him with clarification of the cases that he has drawn to my attention.

Earl Russell

I am most grateful to the Minister for that assurance. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Earl Russell moved Amendment No. 3:

Page 1, line 22, leave out ("subsection") and insert ("subsections").

The noble Earl said: This is a comparatively small amendment. It covers the point of vires for an appeal. If there is to be an appeal against an overpayment, it must cover the matter which came up on the review. That is inevitable. It is in the necessity of the case. However, the effect of the Bill has been to separate the review from the overpayment for reasons which I believe are good and which I accept.

Perhaps I may quote from paragraph 10 of Commissioner Mesher's judgment which gave rise to the Bill. It is the same passage which I believe also gives rise to the case for the amendment. He said: It would be most unfair to a claimant if an adjudication officer could … after the time for appealing against the review decision has expired, decide that a resulting overpayment was recoverable".

That was why Commissioner Mesher found there was a problem about recovery after the period of the review was over. As that problem has been met, Commissioner Mesher's other problem needs to be met also. The amendment is simple and equitable and will, I hope, save confusion. I beg to move.

Lord Mackay of Ardbrecknish

As the noble Earl said, the purpose of the amendment is effectively to reopen the appeal rights of a decision to revise or vary an award where a decision on the overpayment aspects are considered at a later stage. The noble Earl quoted Commissioner Mesher's decision in the Mustard case about the problem of separating the review of the payment from the decision on whether there has been an overpayment; to what extent; and why it arose. They have always been separated and our purpose is to place the legislation in exactly the position that absolutely everyone considered it to be in since 1948.

A person has the right of appeal to a social security appeal tribunal against a decision of an adjudication officer. He has three months in which to exercise that right. The period can be extended by the tribunal chairman in very exceptional circumstances. However, in the interests of good administration, there must be a point where a matter about entitlement to benefit is considered closed. If a person has been receiving an amount of benefit for three months without appealing, it is only right to consider that the amount in payment is accepted and that there cannot, unless there are exceptional circumstances, be a longer period in which that appeal can be made. If a determination on an overpayment is made after the expiry of the time in which an appeal against the revised or varied award can be made, there will still exist a right of appeal against the overpayment decision. That seems to me right. We are talking about where the person fully accepts the amount currently in payment—he has not appealed within the three-month period allowed—but disputes the overpayment part. If he chose not to exercise his rights of appeal when the award was revised in the first instance, I do not see that he can expect the matter to be reopened at a later stage—after the initial three-month period has expired.

In any event, giving a person what effectively amounts to an extended period in which to appeal, in circumstances where his own misrepresentation or failure to disclose led to the award being revised, is manifestly unfair to those who report the facts about themselves correctly and promptly and who do not have extended appeal rights. That is why I think that it is important that we do not extend beyond three months the initial ground for appeal (against the actual decision to vary the weekly or monthly payment), although I accept that beyond that period of three months the person may wish to appeal against the decision on overpayment. The two are separate. I think that the fact that there is a cushion of three months in which someone can appeal against the recalculation of the weekly benefit that is in payment is more than sufficient. To go further would be to go too far. Having listened to that explanation, I hope that the noble Earl will withdraw his amendment.

Earl Russell

I must confess to being rather disappointed by that answer. It seems to me to amount to a total denial of the possibility of an appeal against recovery of overpayment. I cannot see how you can appeal against recovery of overpayment without questioning the assessment of the overpayment which led to the recovery. I think that Commissioner Mesher was quite right: the two matters necessarily become involved with each other.

I take the Minister's point that when you are found to have been receiving an excess of benefit, obviously you should take it up and, if you think that it is wrong, you should appeal immediately. However, if one talks to people on benefit, one realises that they spend a lot of their lives in what I can best describe as a "fog" about why the DSS does to them what it does. A great many of them, without understanding, accept that the DSS moves in a mysterious way and they grit their teeth and bear it. However, if one suddenly faces a demand for recovery of a four-figure sum which one has no chance of producing, that may be a very different matter. I think that the Minister is risking making the right to appeal against recovery of overpayment practically nugatory. Will he read Commissioner Mesher's judgment again and reconsider the matter in the light of what he said? Is the Minister prepared to go that far?

Lord Mackay of Ardbrecknish

I am reading the appropriate paragraph of Commissioner Mesher's judgment. I have been studying it. Even in the interests of being as generous as I can to the noble Earl, I do not think that I can go any further than I have gone because that might lead the noble Earl to think that I was being more generous than I intend to be on this matter.

I am perfectly clear that if, over a period of three months, a person has accepted a reduced payment, there is no case for extending the period in which he can appeal against that reduced payment beyond those three months. Obviously I appreciate that that person may wish to appeal against the size of the overpayment demanded, but that may be on other grounds. He has already accepted that new conditions and new information leads the Benefits Agency rightly to a new conclusion on the amount of the new weekly payment. He can dispute whether he knowingly misrepresented the facts or knew the facts. He can certainly dispute these other matters in an appeal against a decision for overpayment, but I do not believe that it is right that we should extend the three-month period for an appeal against the decision on the recalculation of the benefit itself.

Earl Russell

It is an illness of office that one tends to believe that everybody else is wrong. Briefs come back marked "Resist". I understand perfectly well why that is so. I hope that if I remove myself with my amendments and I leave the Minister so that I am no longer here to say "no" to, the Minister may just think again. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 4 not moved.]

Clause 1 agreed to.

Clauses 2 and 3 agreed to.

Report received.

Then, Standing Order 44 having been suspended (pursuant to Resolution of 18th July), Bill read a third time, and passed.