Public Authorities (Fraud, Error and Recovery) Bill

Lord Davies of Brixton Excerpts

Committee stage
Wednesday 18th June 2025 Grand Committee

Moved by

[Lord Davies of Brixton]

109A: Schedule 5, page 108, line 14, at end insert "following an affordability assessment in relation to the liable person and"
Member’s explanatory statement
This amendment requires the Secretary of State to undertake an affordability assessment before making a direct deduction order.

[Lord Davies of Brixton (Lab)]

My Amendments 109A and 109B address the twin issues of affordability and minimising social harm. Amendment 109A deals with the Government’s proposed “affordability assessment”, which is my term, not the Government’s. Amendment 109B requires a de minimis amount to be left in an individual’s bank account following the application of a deduction order. Neither amendment breaks new ground and both are within the terms of government policy. If we are going to pursue this policy, it has to be transparently fair and minimise social harm, which is the purpose of my amendments.

It needs to be stressed that both amendments are strongly supported by UK Finance, which is the collective voice for the banking and finance industry. These are the people who will have to undertake the hard work of implementing this policy, so their views should be taken seriously. I am not a natural proponent of UK Finance—I have spent much of my working life criticising insurance companies and banks for how they treat people—but it is a relevant participant in this process and its views should be taken most seriously.

On Amendment 109A, as I mentioned, there will be an affordability assessment. It is pretty well hidden—there is no reference to it in the Bill—but paragraph 52 of the Explanatory Notes states that direct recoveries

“will only happen once affordability and vulnerability checks have been carried out”,

so there will be checks. There is a more explicit reference in paragraph 723, which states specifically that

“prior to pursuing a direct deduction order”,

the Secretary of State will consider

“the affordability of recovery”.

That affordability assessment is an inherent part of the legislation, even though it is only implied in the Bill rather than required explicitly. My amendment is a probing amendment to press the Government on whether it would be better to have this in the Bill.

To paraphrase the Government’s position as I understand it, recovering benefit overpayments through the debt recovery measure will be a last resort and the Minister may make a direct deduction order only if satisfied that it will not cause a liable person to suffer hardship. Maybe the Minister could put the intention of the legislation into the Government’s words. UK Finance has said that it welcomes this intent but is concerned that the existing safeguards may not provide the level of protection that vulnerable consumers need in practice. Perhaps it knows its customers better than we do.

For this measure to be effective, an affordability assessment is essential: one that is carried out by the DWP and is accurate and realistic. I understand that the DWP is working with the Money and Pensions Service to flesh out the detail of the process. It is obviously essential that the DWP can understand the circumstances of vulnerable customers to ensure that the affordability assessment is fair and will not lead to social harm.

We know that organisations such as the Money and Mental Health Policy Institute—I declare an interest as a member of its advisory panel—the Money Advice Trust and Citizens Advice have been campaigning for some years for improvements in government debt practices. This is not a new problem. I mentioned in the previous sitting the comments made by the House of Commons Public Accounts Committee, but it is relevant to repeat them. It said that the DWP

“does not understand well enough the experience of vulnerable customers and customers with additional or complex needs … We remain concerned about the potential negative impact on protected groups and vulnerable customers of DWP’s use of machine learning to identify potential fraud”.

This goes back to an earlier debate but it highlights that the evidence to hand is that the DWP is not very good at assessing affordability. It is reasonable, by means of proposing this amendment, for the Government to explain how the affordability will be assessed. If the proposals do not appear to be adequate, I will want to return to this issue on Report.

Similarly, Amendment 109B is a probing amendment. It lacks much of the detail that a specific proposal would need but proposes that there should be a de minimis amount left in an individual’s account following the application of a deduction order. The intention is that individuals should not be left without access to essential funds and should not suffer undue hardship.

This is not a new proposal because there are other circumstances in which debts owed to the Government, where the Government have powers to extract money from people’s bank accounts, permit a de minimis amount. There are the comparable HMRC direct recovery of debt measures where there is a de minimis balance of £5,000. There is a similar arrangement in Scotland. Scottish law is a mystery to me, but there is a parallel arrangement under Scottish law that, in circumstances where debts can be taken, they have to leave at least £1,000.

The problem arises—talking about both sorts of deduction orders—that there is a possibility of extracting money and leaving the individual with no income whatever to meet routine payments such as rent. Because the bank account is frozen, they may also have made prior commitments and, when those arise and these private arrangements seek money from the bank account which has been driven down to zero by the deduction order, the individual is left in an extremely difficult situation as debts that they have incurred are not able to be met. There is also the issue of money for routine costs. If someone depends on their bank account to feed their family and the account is driven down to zero, that will also incur considerable and unwarranted hardship.

It is quite clear that, following existing practice, this legislation should permit a de minimis amount to allow routine financial transactions to continue where barring them would cause social harm. There is a particular problem that, once the 28-day period has been triggered during which people can object to the proposed deduction order, the account is effectively frozen. In fact, it is frozen until the end of the unlimited period the DWP has in order to reply to the appeal against the deduction order. There is potential for considerable social harm and that is why it is important that at least some agreed sum of money is left. I suggest £1,000 in my amendment but I am really raising the issue in principle.

If the Government can come back on Report with a proposal along the lines I suggest, that would be good. If they do not, I will seek to raise this issue. Both these amendments seek to avoid social harm, and I hope the Government will take the points on board and come back on Report with suitable amendments to avoid the problems identified, not just by me but by bodies in membership of UK Finance which deal with the customers who will be caught by these provisions.

--- Later in debate ---

[Baroness Sherlock (Lab)]

My Lords, I am grateful to my noble friend Lord Davies for raising this, and to the noble Viscount for his observations. I agree with my noble friend that affordability assessments should be conducted—he has made that clear, and we certainly want to do that as we think it is important—before a direct deduction order is issued, but we regard this amendment as unnecessary and duplicating existing provisions.

Paragraph 6 of new Schedule 3ZA, inserted by Schedule 5 of the Bill, provides that recovery must not cause hardship to the debtor, any joint account holder or dependant, and must be fair. Paragraph 3 requires the DWP to obtain, via an account information notice, bank statements covering at least the most recent three months in order to help make that assessment.

Further detail on how affordability will be assessed will be set out in the code of practice, a draft of which is available to Members; I am sure that my noble friend has had the opportunity to see it. It sets out the principles that will apply when affordability is assessed. They include ensuring that essential living expenses and other reasonable financial commitments are identified and protected. Officials are working closely with organisations such as the Money and Pensions Service to develop the code and, as required by Clause 93, a formal public consultation will be conducted on the draft before it is first issued.

As I have already outlined, affordability assessments must and will take place prior to enforcing a deduction order. These checks use banks statements, allowing DWP officials to consider expenses such as housing and utilities, enabling the deduction to be affordable, fair and based on individual circumstances, rather than a blanket approach of leaving a set amount in the account which could, if not set high enough, prevent the debtor from meeting those essential costs, as the amounts will vary from person to person.

For regular direct deduction orders, paragraph 6(3) of new Schedule 3ZA requires that any regular deductions made by the DWP each month must not exceed 40% of the monthly average amount credited to the account during the last period in which statements were assessed. Regulations will be made under paragraph 24(2)(d) to further set a maximum rate of 20% for all cases that have not arisen due to fraud.

These figures are maximums, rather than fixed deduction rates. Deduction rates will vary as officials take any affordability, hardship factors or other relevant circumstances into consideration. This approach mirrors that already used effectively in the DWP’s existing powers of deduction from earnings or benefits, and it is not obvious why it should be different in these circumstances. Given the safeguards outlined, requiring that £1,000 be left in one or more of the liable person’s bank accounts in every case where a DDO was sought is unnecessary, as the safeguards will already achieve the outcome intended by this amendment.

Regarding the specific questions, I reassure my noble friend that we are alive to the concerns of UK Finance, which we meet regularly. We are working with MaPS and relevant debt sector organisations on this. He mentioned a comparison with HMRC. HMRC has confirmed that its power is a one-off deduction of a tax debt, not a regular deduction. As a result, it does not assess customers’ affordability as part of the process. Its safeguard instead requires it to leave a minimum of £5,000 across the customer’s accounts to stop taxpayers being left with insufficient funds to cover basic needs. We are taking a different approach: we are assessing affordability, and we will have clear sight via bank statements of the debtor’s ability to repay.

In addition to the work we are doing with MaPS, we are working with relevant stakeholder organisations to make sure that our communications with debtors are clear, to help them understand what we are doing and to engage in the best possible way.

I remind the Committee that before any deductions are taken, account holders will be notified and given the chance to make representations. They can provide relevant information about their financial position and evidence relevant to affordability. Even at that stage, the department’s preference is to reach an agreed position with the debtor. If reasonable payment terms can be agreed and they are maintained by the debtor, the DWP will not make a deduction order.

My noble friend and I clearly want the same thing: to make sure that any recovery is affordable. We have taken different routes, but I hope that what I have said today will help him to accept that our route is doing the job and, in the light of that, he will withdraw his amendment.

I am sorry, I forgot to respond to the noble Viscount about destitution. I may have to come back to him on that, because it would depend very much on somebody’s circumstances. Although the household support fund is locally determined, some directions, steers and guidance are given by the centre by the DWP to local authorities. But the fund is significantly there to help with the cost of living. In relation to someone who is destitute and has committed fraud, people may still, if they have an ongoing entitlement to benefit, have been subject to a loss of benefit penalty as part of a process. So it would very much depend on the circumstances. But if I can find anything else useful, I should be happy to put that in writing to the noble Viscount.

[Lord Davies of Brixton (Lab)]

I thank the noble Viscount and my noble friend the Minister for comments on my amendments. It has been useful to receive a coherent assessment and description of how this process will work. I will read carefully what was said and consider whether it is an issue that needs to be pursued at a later stage. I thank those who have spoken. I beg leave to withdraw my amendment.

Amendment 109A withdrawn.

--- Later in debate ---

Debate on whether Clause 92 should stand part of the Bill.

[Lord Davies of Brixton (Lab)]

We have an issue on this proposal to remove driving licences from people who fail to pay their debts to the DWP. We effectively had a debate on the issue at Second Reading, and I am sure that there will be a debate on this at Report. The purpose of having another prolonged debate at this stage, when situations and positions are so clear, is limited. Although there are clear arguments about effectiveness, and it was advanced that the experience of the child maintenance system, where such a power exists already, indicates the success of the policy, the problem is that we do not have a clear counter to that. We know what we know: very few driving licences are deducted or abolished because of action by the Child Maintenance Service. Is that because it is an effective policy and everyone complies, or because it is rarely used because it is ineffective? We simply do not know. The proponents of the proposal here will say that that demonstrates the policy’s effectiveness, but I think it is reasonable to continue to express doubts about that. However, that is a separate issue.

My objection, fundamentally, is about the philosophy of what is being achieved here and about the nature of state power. I am sure we all agree that the state should have the power to decide who is safe to drive on the public roads. I have no problem with that; that is the responsibility that we as a community have entrusted to the state. The issue is whether that right should be used for other purposes. Is the fact that you can or cannot have a driving licence related to other factors? In my view, it should not be used for other factors; that is an overextension of state power, which is the fundamental reason why I oppose this part of the Bill and why I am suggesting that the clause, and consequently the schedule, should not be passed. This is an issue of principle, as I have explained, and I am sure that we will return to it on Report—so enough said.

--- Later in debate ---

[Baroness Sherlock (Lab)]

We are not proposing removal of passports on this occasion.

[Lord Davies of Brixton (Lab)]

I thank noble Lords who took part in the debate. I thank the noble Baroness, Lady Bennett, for her support. I am disappointed that the Conservatives, the party of individual freedom, did not see fit to support my argument.

There are a couple of issues that could be helpful to the debate which is likely to take place on Report. If it is possible to get further statistics from the Child Maintenance Service about people who were threatened and then gave in—I cannot totally see how that is possible—that would be good.

There is also the issue of the discriminatory nature of the punishment between different groups of people. As I have made clear, that is a practical objection, which is not why I am against this measure at heart. It would be useful in debate to know more of that practical question. As I have read the paper so far, it is about people who require a driving licence to carry out the functions of their job. However, my noble friend the Minister said that it would cover people who need to drive to work. Perhaps she could interrupt me if she is able to clarify.

[Baroness Sherlock (Lab)]

It is up to the court to determine if someone has an essential need for a licence. We have deliberately drawn it broadly so that the court can make that determination. Examples were given of somebody who needed a car to go to work or maybe had essential caring responsibilities. In response to the noble Baroness, Lady Bennett, I raised the possibility of somebody who lived somewhere so remote that there was no public transport. Again, that would be a case that they would make to the court. The position is deliberately drawn broadly to allow the court to make that determination.

[Lord Davies of Brixton (Lab)]

Thank you; that is helpful. I withdraw my objection to Clause 92 standing part of the Bill.

Clause 92 agreed.