Social Security (Claims and Payments) Amendment (No. 2) Regulations 2010

Lord Goodlad Excerpts

Monday 21st June 2010 Lords Chamber

[Baroness Thomas of Winchester]

My Lords, I thank the noble Lord, Lord Lucas, very much for the comprehensive way in which he introduced his Motion and welcome him to this most exclusive of gatherings in London; the tiny number of us in this House who speak on DWP orders and the even tinier number who table regret Motions to them.

Before going any further, we have discovered from the response given by my right honourable friend Steve Webb to a letter from the chairman of the Merits Committee last Session that the new Government may decide not to go ahead with this pilot, but I suppose that we must carry on as though they will go ahead at this stage, unless the Minister wants to interrupt at this point to say that they will not. There is no interruption, so I shall carry on.

First, I am glad that the Government have listened to the Social Security Advisory Committee's recommendation, which urged them to bring the list of benefits from which HMRC debt recovery repayments can be made into line with the current list of benefits from which priority debts can be deducted. In other words, any deductions would be from means-tested and not contribution-based benefits. I take the point made by the noble Lord, Lord Lucas, about that being money from the poorest people in the country, whichever benefit it is from.

I am also glad that the SSAC highlighted the vital point that claimants understand the voluntary nature of the trial and the impact on their income of signing up for the trial. A lot of people will not know what “voluntary” means—although they may pretend that they do. The Government have responded positively to that point, saying that they will share copies of the letters sent to claimants with the committee, and that they will ensure that the letters, and contact centre staff, will direct the claimant, or customer, to the availability of independent advice.

The SSAC understandably believes that there is scope for confusion among claimants who receive letters from HMRC. Just seeing that letterhead is likely to lead to many claimants into thinking they are being hounded for recovery of their tax credit overpayments, whatever the letter actually states. If claimants then telephone HMRC, is the Minister satisfied that they will be told in every case that they do not have to repay their debts by having them deducted from their benefits? Will they be told in all cases that they might want to take independent advice, which might lead to some of their debt being overturned or even written off?

Before leaving the subject of letters from HMRC, perhaps the Minister can tell us why it does not provide an explanation of a tax credit overpayment to claimants in all cases; that seems not to be provided as a matter of routine. I cannot think why not. I know that the Minister does not speak for HMRC, but as this SI is a joint project between the two departments, I make no apology for asking him that on this occasion.

We must remember that the Government did not agree with the SSAC that repayment should be at a lower level than they are proposing in this trial, which is three times the normal amount per week. As the noble Lord, Lord Lucas, pointed out, benefits are not generous, and there are rumours that they will not be uprated as usual—we shall hear more in tomorrow's Budget. If claimants in debt have no other source of income except their weekly benefits, many of them will suffer severe hardship if they are being encouraged to repay their tax credit overpayment from those pretty meagre benefits. I may have got the wrong end of the stick here, but I find it horrifying that the SSAC understands that HMRC staff may suggest that debtors apply for a commercial loan to pay off debts—presumably they would never suggest a commercial loan to pay off a tax credit overpayment.

Turning to the design of the pilot, and first, to the aim of the pilot, this appears to be twofold: to find out if there is a demand from claimants for this method of repayment—that sounds almost like an oxymoron—and to see if the scheme is cost-effective. There is more information in the answers to questions from the ever-vigilant Merits Committee about how the scheme will operate. As the noble Lord, Lord Lucas, said, there are to be three groups for evaluation purposes. The first group will be those who volunteer to take part in the trial. The explanation goes:

“The evaluation will look at how much was recovered, the spread of weekly deduction rates, how long a person is in receipt of a relevant benefit and what could have been recovered had they been taking part in the trial for the whole two years taking account of expected levels of movement on and off benefit”.

That sounds fiendishly complicated with so many permutations that you wonder whether any comparisons will really make sense. The next two groups are about those who declined to take part in the trial who will form the control group. First, they have to agree to respond to a letter asking them to take part. I wonder how many will be keen to do that. Not very many, I imagine. Therefore, a key question is: how small does the sample size have to be to produce robust data? I note that the Government say:

“We accept that the smaller the sample, the less able we will be to draw definitive conclusions."

I also note what the Government say about those who go off benefit during the pilot period; namely, that there is no minimum number of weeks for which deductions have to be made in order to regard the participant and repayments made as significant for evaluation purposes. I would have thought that was a rather significant fact.

Perhaps the most encouraging sentence in the whole explanation is:

“In addition the performance of new joined up operational processes between HMRC and DWP will be assessed”.

Is the Minister really confident that this trial will produce a reliable result, in view of all the problems that the SSAC and others have pointed out?

[Lord Goodlad]

My Lords, I have very little to add to what has been said by my noble friend Lord Lucas. The Merits Committee reported to the House on this matter in April and again following a meeting last week. He has deployed all the considerations that we had in mind with his usual thoroughness. The noble Baroness, Lady Thomas, added to that. We will hear what the noble Lord on the Opposition Front Bench has to say. Whether to proceed with the trial is clearly a matter that will have to be considered in the light of, among other things, what is said tonight. A very large number of people, including the poorest people in our society, are involved in all this, and we look forward to hearing what the Minister has to say, but it is an extremely important matter.

[Lord Kirkwood of Kirkhope]

My Lords, I am pleased to be able to follow colleagues in this technical but important debate. I start by congratulating the noble Lord, Lord Lucas, on joining the Motion-to-regret club. The bad news for him is that the chairman is my noble friend Lady Thomas, I am the secretary, and he will now have to be the treasurer because there are only three of us who have been through this process. He is a very welcome addition to the clan. It is a very distinguished group, as my noble friend said.

I will take a slightly wider look at the background to the order. I am very worried that it will become a default option for Her Majesty's Revenue and Customs, which would be a very bad thing. The first thing that we should bear in mind is that we are talking about recovering overpayments that have been made by the Treasury. A number of questions flow from that if it is true, which I believe it is. Why on earth is the department rolling out pilots of this kind at a time of real stress and difficulty, with administrative cuts and all sorts of pressure on DWP staff? I make no complaint about that because I think we are all prepared for it, but these are some of the most difficult financial circumstances that low-income households have ever faced. This is a once-in-100-years event—I have certainly seen nothing like it in the 30 years that I have been in public life—and we should not start spraying letters around to people who are in debt only to the extent that the Treasury has miscalculated the amount of tax credits that they are due. We have to bear in mind the fact that this is not just debt but an overpayment; it is a function of error at the hands of Treasury officials. We have to be very careful about the context in which we are sending these letters and raising these proposals, even though this is supposed to be a voluntary scheme.

Incidentally, I do not expect the department to have these figures available in the Minister’s brief this evening, but I would be very interested to know how many customers on benefit are affected by self-assessment error. There cannot be a big number of them across the country. Self-assessment is used mainly by people who are outside PAYE and who are self-employed and the like, so the question of self-assessment by people on benefit puzzles me, given the constrained nature of the benefits to which this order applies. How many people across the country in the system are in that position?

I know that the noble Lord, Lord Freud, cares about this and is enthusiastic about reform. The complexity of the system is part of the reason why these overpayments are made in the first place, and rolling out pilots to mitigate the damage that is done by complexity and error is the wrong way around. We should concentrate, and I believe that he will concentrate, on getting the system right first time and on not creating the overpayments in the tax credit system that create these debts. We need a root and branch review, and I hope that he will not lose his enthusiasm for that. Knowing him, I think that that is unlikely. I would strengthen his hand to get this done. It will not happen quickly, but I hope that he will use his undoubted expertise in financial systems to help to bring that about.

Secondly, third-party deductions are a very important part of the social security benefit system. They were contrived in 1988 and were an anti-poverty measure to protect levels of benefits. The Social Security Advisory Committee’s report on this shows—at paragraph 4.4, table 1—that mortgage payments, rent arrears and fuel charges were the essential things for which deductions could be made. People needed a deduction for housing or they were evicted, and they needed a deduction for fuel charges or they became hypothermic. That was why the third-party deduction system was put into place. It has been extended as the SSAC memorandum suggests, most recently for child maintenance purposes in 2006. However, we must be very careful about why and when we use third-party deductions or we get into management objectives and not anti-poverty ones. Third-party deductions should be used absolutely only in circumstances in which they cannot be avoided. Benefit levels are already at poverty levels. Measured against average median household incomes, poverty levels are built into some of the levels of benefit that we have at the moment. We should interfere with third-party deductions only with great care. The SSAC memorandum says—an occasional paper was done on this in 2008—that we should look at all these things and indicates the part that the social fund should play in dealing with anti-poverty.

My noble friend mentioned the hardship rules, which are important. There are some circumstances, which I came across myself not that long ago, where write-offs would have been properly argued and could have been suggested in ways that would help the households. But they are able to be determined only by people who know what they are doing. Citizens Advice and independent financial advisers who specialise in this kind of work and who know what they are doing can make recommendations which otherwise would be left unknown to the households that these things affect.

Thirdly, this cannot be done without safe, independent financial advice. I know that the FSA has tried to roll out a financial capability scheme—it may have been caught by purdah during the general election campaign—but we can be sure that these debts are being recovered safely, even in a so-called voluntary capacity, only if there is independent advice to which people can be referred so that they know that what they are doing is sensible in the totality of their debts.

The excellent recent publication, State of the Nation Report: Poverty, Worklessness and Welfare Dependency in the UK, produced by the Secretary of State, states that 79 million people in the United Kingdom are in serious debt. An independent advisory service would serve not only the purposes of these regulations but would have a wider purpose as well. One could argue that some FSA rules about treating customers fairly would require people repaying debts to HMRC to be given a statement of what their repayments are doing in terms of extinguishing the debt over a period of weeks or months, but I hope not years. There are no statements. In my experience, a lot of people have no idea of how their benefit payments are made up or of what payments are being made to other parts of the system which may also have third party deductions on their benefits.

The treating customers fairly rules of the FSA should be applied if this pilot ever is rolled out across the country because £9.75—the noble Lord, Lord Lucas, effectively made this point—to a household operating on a weekly cash basis, as a lot of benefit families and households are, is a huge amount of money. Many of these households have to work on a cash basis from week to week, robbing Peter to pay Paul and trying to stay out of default. It is a very difficult balancing act for them to manage.

As regards the timing of this, the earlier memorandum and other papers suggested that a roll-out would almost be upon us even now. The response from Steve Webb to the committee at a later stage made it clear that there was some reconsideration of whether the thing would even start. This is an important moment to stop and think about whether the pilot is necessary and, even if it were was successful, whether we are creating a default option which just makes it easier for the Treasury and HMRC to correct errors that they should not have made in the first place.

Finally, the SSAC recommendations, taken together with the timing and the context into which these pilots are being introduced, are inimical to the interests of benefit households in the way that they are currently cast. I for one would recommend to the Minister that he suggests that this pilot is cancelled.