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

Debate between Lord Goodlad and Lord Kirkwood of Kirkhope

Monday 21st June 2010 Lords Chamber

[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.