Public Authorities (Fraud, Error and Recovery) Bill

Debate between Lord Verdirame and Baroness Lister of Burtersett

Committee stage
Wednesday 25th June 2025 Grand Committee

[Baroness Lister of Burtersett (Lab)]

My Lords, Amendment 123 is supported by the noble Baroness, Lady Bennett of Manor Castle, who is in the Chamber, and the right reverend Prelate the Bishop of Leicester, who regrets that he cannot be in his place. He was going to be replaced by the right reverend Prelate the Bishop of Manchester but he is also in the Chamber. I thank them anyway for their moral support, even if it cannot be practical. I also thank the Public Law Project for all its help with the amendment. I apologise that I was unable to attend Second Reading, but my noble friend Lord Davies of Brixton kindly gave notice of this amendment.

The amendment brings the test of recovery of universal credit overpayments caused by official error into line with the housing benefit provisions by ensuring that recovery can be made only where the claimant could reasonably have been expected to realise there was an overpayment. There is surely no better time to address official error overpayments in a Bill so appropriately named the “Fraud, Error and Recovery” Bill. However, it is currently one sided. Although it recognises the harms that both fraud and error cause in the social security system, it focuses only on the behaviour of claimants. It does not address the harms that result from the recovery of so-called official error overpayments. These are debts created because of mistakes made by the Department for Work and Pensions.

Unlike many other benefits, DWP can recover official error UC overpayments from claimants. This power was introduced in the Welfare Reform Act 2012 and represented a significant change to the position previously applied to most legacy benefits—that is, those that preceded UC. According to DWP data, in 2023-2024, 686,756 new UC official error overpayment debts were entered on DWP’s debt manager system. Is my noble friend the Minister able to give us any data on the circumstances in which official error overpayments occur and the average length of time before they are identified?

We are not just talking about numbers on a debt manager system. These DWP mistakes are having a serious impact on the lives of individuals such as D, who got in touch with me after hearing my noble friend Lord Davies raise the issue at Second Reading. D emailed me and we had a phone conversation. She told me that after her son was born, she was incorrectly told by DWP that she would be able to claim UC while her partner was studying for a master’s degree. Two years later, the DWP then told her that she was not eligible and that she now owed them £12,000—a “life-changing amount”, in her words. She has tried to dispute this through the tribunal system and the DWP complaints process. But even though the judge in the tribunal was sympathetic, the response has been that the DWP has the power to recover all overpayments, regardless of how they are caused. D now has £20 deducted from each UC payment she receives but no record from the DWP of how much she still owes.

It simply should not be the case that claimants such as D are paying the price for DWP mistakes. Public Law Project research demonstrates that the financial and psychological impact of overpayment debt recovery on individual claimants can be severe and is often associated with a particular sense of injustice. Understandably so, with individuals finding themselves unexpectedly in debt through no fault of their own.

The DWP’s default approach is to recover all overpayments regardless of how they are caused. The onus is on claimants to request discretionary measures, such as a waiver, but the DWP does not automatically tell them this. In 2023-24, only 75 waiver requests were granted; this equates to only 0.01% of overpayment debts registered that year. Could my noble friend tell the Committee what steps, if any, the DWP is taking to make waivers more accessible? In particular, would it consider following the example of the Department for Communities in Northern Ireland and automatically including reference to waivers in communications with claimants? Will it consider lowering the thresholds and evidential requirements to grant waivers?

In the Commons, the Minister referred to measures that were in place to mitigate the risk of harm associated with overpayment recovery. I welcome the introduction of the fair repayment rate, which I am sure my noble friend will mention. However, access to some of these safeguards is not an easy process for claimants to navigate. Moreover, as evidenced by research from the Public Law Project, Citizens Advice, the Trussell Trust and StepChange, and acknowledged by the DWP’s own guidance, those safeguards are not sufficient to prevent harm and hardship.

This was illustrated by a recent report from Policy in Practice about deductions from UC in general. It observed that many low-income households are already in crisis and at risk of deep poverty, prior to the application of deductions. I know that I do not have to explain to my noble friend the difficulties of trying to survive on universal credit and how low it is. That will still be the case despite the welcome, real-terms increase being proposed in the legislation currently before the Commons. Policy in Practice found that deductions risk placing households further from being able to afford the essential items of daily life. This is particularly the case for lone parents and carers.

Citizens Advice reports that fewer than 40% of its clients who contacted the DWP were successful in getting an affordability measure put in place, yet the DWP’s own guidance recognises that any recovery of an overpayment from any person in receipt of benefit is almost certain to cause some hardship and upset for them and their family. What criteria does the DWP use to decide what is an affordable deduction? Would the DWP consider agreeing an affordable and sustainable repayment plan with claimants before initiating recovery by way of deductions?

As I said, overpayment recovery is taking the individual below the amount that the DWP has assessed them to need, in a context where UC rates have already been shown to be insufficient to meet essential needs—a point emphasised by Policy in Practice. This is why I have tabled an amendment to bring the test for recovery of UC overpayments into line with the current test for housing benefit. It would ensure that UC overpayments caused by official error could be recovered only when individuals could reasonably have been expected to have realised that they had been overpaid. It places the onus on DWP officials to consider the fairness of recovery before initiating it. When UC was introduced, the then Labour shadow Minister for Employment considered this a just and fair test, which has been tested in case law.

This amendment would also create a clear incentive for the DWP to prevent these mistakes in the first place, which is a step towards a better-functioning social security system that gets things right first time. We ought to pay attention to the more than 30 charities that have written to the Secretary of State urging the Government to grasp this opportunity.

In introducing the Bill’s Second Reading, my noble friend stated:

“Our approach is tough but fair … fair on claimants, by spotting and stopping errors earlier and helping people to avoid getting into debt. It is fair on those who play by the rules”.—[Official Report, 15/5/25; col. 2346.]


But the current system is patently unfair to those who have been affected by an official error that they could not be expected to spot, and who have played by the rules as they understood them.

This is a fundamental question of fairness and of rights and responsibilities. If a government system makes mistakes, who should bear the consequences? Is it the system that caused the error and has the power to avoid it, or the service user who has no control over, or responsibility for, that mistake and, worse, is detrimentally affected by it? If we are serious about addressing fraud, error and the recovery of debt in the Bill, it would—for want of a better word—be an error on our part not to take action to end this unfair practice and source of economic instability for hundreds of thousands of families and individuals whom our social security system is there to serve. I beg to move.

[Lord Verdirame (Non-Afl)]

My Lords, I will speak in support of the amendment because it raises, as the noble Baroness, Lady Lister, pointed out, a question of principle. Should a person who received payments in error always be required to make restitution in full?

We are dealing with the application of this principle in the context of welfare payments, but it may be useful to keep in mind how this principle would apply in other contexts under our law. The default position is, as one would expect, that a party that has received money in error is obliged to return that money. However, it is also the case that our law has developed an important exception to this general position. This is known as the change of position defence, which was first recognised by Lord Goff in the case Lipkin Gorman v Karpnale Ltd 1991, where he said that

“the defence is available to a person whose position is so changed that it would be inequitable in all the circumstances to require him to make restitution, or alternatively, to make restitution in full”.

In essence, where the person has changed their position, in good faith, in reliance on that payment—for example, by spending it—restitution in a non-welfare context may be denied in whole or in part.

As I said, it is an equitable exception that our law has developed over a number of decades and on the basis of various decisions. It is a complex area of law known as unjust enrichment, on which many doctoral theses have been written. The reason it has attracted so much attention is that there is a conflict of fairness. On the one hand, it seems right that the payer who paid in error should, in principle, receive the money back and that people should not derive benefit from someone else’s innocent error. On the other, it also seems wrong that someone who made no error and relied, in good faith, on that payment should be unduly penalised. The common law and equity seek to strike a balance between these two concerns with the change of position exception that I have outlined.

For welfare payments, we are dealing with a context where statute rather than common law applies; however, it seems that the concerns that the common law has sought to address in other contexts arise even more acutely. The people who received the payments are socioeconomically disadvantaged and very likely to have spent that money, as the case mentioned by the noble Baroness illustrates. Thus, they are very likely to have changed, in good faith, their position by relying on those payments. To ask them to return that money is particularly burdensome on individuals who are on benefits and without a safety net.

Section 71ZB of the Social Security Administration Act, which the amendment proposes to change, seems a very blunt instrument. It responds to that first concern—to ensure that the payer, in this case the taxpayer, should have their money back—but it does nothing to protect the bona fide recipient of that payment from being penalised unduly. For that reason, it seems a fundamentally unfair provision. It seems wrong that the protection that a bona fide recipient of a payment in error would enjoy in other contexts, including a commercial context, should not apply to the bona fide recipient of a welfare payment made in error. This amendment seeks to remedy that unfairness, and it has my support for that reason.

It is true that Section 71ZB gives the Government a discretion and I suppose it will be said that there is guidance that tells the Government to exercise that discretion, taking into account certain circumstances. But the good will of the payer is not sufficient and that certainly is not the position under the general common law on restitution. It is not just a matter of the payer having the good will not to pursue the recovery of the payment; there has to be more to recognise that the innocent beneficiary, too, has an entitlement to protection. It seems to me that this amendment seeks to provide that correction to Section 71ZB of the Social Security Administration Act 1992.

I will, of course, be interested to hear what the Minister has to say about the various mitigations that might exist, but at the moment I agree that, unless the mitigation is in statute, whatever guidance might be in place will not be sufficient. I would also like to take this opportunity to thank the Minister and her officials for the very informative briefing last week.