Social Security (Civil Penalties) Regulations 2012

Lord McKenzie of Luton Excerpts

Thursday 12th July 2012 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights.

These regulations support the powers introduced by Section 116 of the Welfare Reform Act 2012, which allow both the Secretary of State and local authorities to impose civil penalties in relation to benefit claims and awards in certain circumstances. That section allows for the amount of the penalty to be set by regulations. Our reason for bringing forward these regulations is straightforward. It is right that claimants should take responsibility for the information which they provide in order to receive benefit, or to notify us of important information affecting their entitlement. Claimants are in the best position to tell us of these facts and of these changes as soon as they occur. When you consider that £1.3 billion is lost each year as a result of claimants who fail to do this, it is clear that we have an immediate issue to address.

Introducing a civil penalty will help to make claimants more personally responsible for the overpayments they incur and encourage a positive change in future behaviour. We remain committed to tackling the intolerable financial loss through claimant error and the regulations before the Committee support that aim, the detail of which I will now explain.

In bringing forward these supporting regulations, we have set the civil penalty at £50 in all three cases where a penalty may be imposed. The amount of £50 was previously announced in government publications and was stated by me and my honourable friend in another place during the passage of the 2012 Act. I trust, therefore, that the penalty level is no great surprise today. In setting the penalty at £50, we aim to be tough but fair in our approach. It is also a significantly lower amount than the harsher consequences which would apply to those who commit benefit fraud offences. The penalty is directed at a failure to take proper care of a benefit claim, as distinct from fraud. We believe that £50 is an appropriate amount for the penalty level. It is high enough to encourage claimants to take more personal responsibility for overpayments incurred through their negligence as well as encouraging a positive behaviour change in any future dealings with the department. The penalty will be simple to calculate and easy for the claimant to understand and recognise. Providing for the same penalty to be imposed in all three cases where they can be imposed will allow for this.

I reassure noble Lords that we will always consider the individual circumstances of the case when deciding whether to impose a civil penalty. To be clear, we must tackle claimant errors which results in losing as much as £1.3 billion each year. This penalty will help us to achieve that. Those who continue not to take proper care of their claim in future will also risk incurring a £50 civil penalty on top of having to pay back the overpaid money. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of these regulations. They have of course already been considered in another place. We do not object in principle to what is proposed, given that some £1.3 billion is lost through claimant error each year. I do not know if the Minister has an update on estimates of benefit overpaid through official error; if he does, it would be of interest to hear what that number is.

As we have heard, the civil penalty is set at £50 for each of three types of error, namely incorrect statements, failure to provide information and failure to notify changes of circumstances. So far as incorrect statements are concerned, they must have been made negligently and reasonable steps not taken to correct the error. In the case of disclosure of information and failure to provide details of changes of circumstances, there is the defence of “reasonable excuse”. It is therefore acknowledged that application of the civil penalty should always require a judgment to be made; the Minister confirmed that.

Can the Minister confirm first that, except in the case of housing benefit and council tax benefit, the judgment will always be made by Jobcentre Plus decision makers and not by contractors? The Minister of State in the other place confirmed that guidance would be available to staff, but we would be grateful if the noble Lord, Lord Freud, could say a little more about that guidance. We have discussed many times the situations of those with mental health conditions, especially those with fluctuating conditions, in connection with the issue of sanctions. The same issues must surely run for the issue of penalties. Can the Minister say specifically what the guidance is likely to cover in this respect?

The Explanatory Note says that DWP will,

“draw on the expertise of interested outside stakeholders to ensure that guidance, communication products and decision making processes are suitably tailored to meet the needs of the range of claimants”.

Might we be told what this has amounted to, to date?

In passing, we had a very helpful presentation on progress on universal credit earlier today. I did not spot anything flagged as part of the claimant process issues around the prospect of civil penalties in the various bits of information we had, but perhaps we missed it in that presentation.

The Explanatory Memorandum states at paragraph 7.7 that where a failure to disclose could cause an overpayment of more than one benefit,

“only one civil penalty will apply”.

What is the situation where the failure relates to an assessment of, say, jobseeker’s allowance and housing benefit? Prior to universal credit being introduced, the appropriate authority for the latter will be the local authority, not the DWP. How will it be ensured that only one civil penalty will arise?

We debated this during the passage of the Welfare Reform Act, but will the amounts collected in penalties accrue to the Treasury, to the DWP or to local authorities? If the latter, how will a single civil penalty be divvied up?

There was discussion in the other place during the passage of the Welfare Reform Act about the anticipated volume of civil penalties—in excess of 500,000—especially in contrast to HMRC data concerning parallel provisions. If this is right, it is a worryingly high volume and calls into question the real level of discretion that will be available in judging whether someone has been negligent or has failed to take reasonable steps to correct an error. What assessment has the department made of the time and cost involved in making these judgments? There must surely be an impact also on the volume of appeals. What does the Minister think this might be?

The provisions apply to the administration of council tax benefit also. As I indicated earlier, we are doing our best for the Minister to have its replacement inculcated within the universal credit through our deliberations on the government Finance Bill but, I am bound to say, some of our arguments are, unusually, falling on stony ground. Should council tax support be localised, the provisions of this order would presumably cease to have effect for local schemes, even the default ones. Presumably one would have to look to the powers in that Bill to see what alternatives might be available.

Because the universal credit is intended to be the great simplification, one would hope that that would make claims and associated issues easier to deal with and would therefore ease the circumstances in which these penalties might be applicable. However, that remains to be seen. We will not oppose these regulations.

--- Later in debate ---

[Lord Freud]

My Lords, I shall try to deal with as many questions and to avoid writing as many letters as possible. The noble Lord, Lord McKenzie, asked about the latest figure on official error. The latest figure is £0.8 billion. As regards making sure that one civil penalty will apply, we have put in place processes for decision-makers to check whether a penalty has already been applied for the same failure or error resulting in the overpayment. Only the JCP and the decision-makers, PDCS, are dealing with the non-housing matters. The way in which we ensure that we do not get a double whammy with local authorities and DWP is for local authorities to apply their penalties only when the standard housing benefit or council tax benefit is the only benefit in payment. In that way, there is no possibility of an overlap.

We are drafting the guidance and we hope to share the final draft guidance with SSAC by the end of this month. We will look to share it with other relevant stakeholders at that time to take on board their comments. The guidance will cover the obvious examples of negligence, reasonable steps and reasonable excuses. As one would expect, there will be intensive training, which will explore definitions of the penalty criteria. I do not think that the figures have changed from the impact assessment that we discussed when we were looking at the Bill. The cost is £19 million over 2014-15. The appeals estimate, which we discussed, remains purely an estimate.

In response to my noble friend Lord German’s question on the difficult mix of discretion and consistency, it is important that we have clear guidance about what constitutes the penalty criteria. Each case will be individually considered by a decision-maker. They will have general duties, such as to look at only what is relevant and to explain their decisions to claimants. My noble friend’s idea had not occurred to me. He is more devious than me about using this process to make sure that we do not have different information going to decision-makers and later to tribunals. I think that I shall take that away and think about it, as it is rather clever. That is a design issue that we shall explore.

I say in answer to the noble Lord, Lord McKenzie, that we will monitor the new penalty to ensure that it is effective—and to what extent—and that there is equality of treatment. We will use evidence from a range of sources such as administrative data and wider data sets. In practice, one of the main success criteria will be that we impose fewer penalties as time goes by.

We talked in the past about the fact that we now have a framework for conducting trials much more coherently right through the system. Clearly, we will pick out the key behavioural impacts of different aspects of the policy. How sanctions will work in that area is something that we will look at with randomised control trials. It is a very obvious test and there will be mechanisms for conducting it. We will look at the results very closely, and rather earlier than at the results of other tests, once UC has come in. I hope that I have dealt with all the issues.

[Lord McKenzie of Luton]

Perhaps the Minister would just confirm whether the penalty revenue accrues to the department or to the Treasury.

[Lord Freud]

My Lords, I distinctly remember writing a letter to the noble Lord on this matter—and I really regret that I cannot remember what I said. So I will let my letter on the matter stand. Perhaps the noble Lord would look through his files. I have just received a note to say that penalty revenue will go into the Consolidated Fund. I remember writing that now; I laid it out in detail. If the noble Lord would like amplification on that letter, which was quite long, I would be happy to give it to him, perhaps over a cup of tea.

[Lord McKenzie of Luton]

I am grateful to the noble Lord. That means that the costs associated with the system will fall on the department and the revenue will go to the Treasury.

[Lord Freud]

Yes, but in reality there will be a transfer one way and then a transfer the other way within the overall DEL settlement. There may be some minor timing discontinuities, but my officials in the DWP are extraordinarily well versed in discussing these matters with equally well versed Treasury officials and getting the flows of funds to work together—so not even tea on that issue.

As ever, noble Lords asked very informed questions. I hope that I have dealt with all of them and welcome the fact that there is general support in principle for the regulations. I commend them to the Committee.