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The Department has been successful in improving the effectiveness of its debt identification, referral and recovery procedures, increasing cash recoveries from £180 million in 2005-06 to £281 million in 2008-09. However, yet again, evidence proves that the Department needs to significantly improve how it makes benefit payments. The total amount of money owed to the Department as the result of benefit overpayments is now £1.85 billion and is rising as recoveries are not keeping pace with the increase in referrals. As the rate at which debt can be recovered is limited by the financial circumstances of many of the Department's customers, the current economic downturn may place further pressure on the debt stock.
Helping customers avoid getting into debt is important for both the Department and its customers in managing their finances, and the increasing total level of debt reflects the difficulty of recovering money once overpayments have occurred. Overpayments arising from Income Support accounted for over 70% of all debts at 31 March 2008. It is therefore critical that the Department improves its debt prevention procedures and intervenes more directly to check that the circumstances of customers have not changed. It should also increase its knowledge of customers, such as by risk profiling.
In 2007-08, some £9.3 million of small overpayments below £65 were written off because the Department considered them too small to justify the cost of recovery action. But the Department does not distinguish between different types of debtor or different recovery routes in assessing whether the costs of recovery are likely to outweigh the benefits. Moreover, the Department does not have a reliable means of verifying what level of repayment its debtors can afford and this process is open to abuse. It has begun to assess the feasibility of selling off some or all of its debt but would need to safeguard the welfare of vulnerable customers in any future sale.
The Department has been slow to improve the quality of its management information. It needs to benchmark performance more actively with the private sector and assess the relative cost effectiveness of different recovery processes.
On the basis of a Report by the Comptroller and Auditor General,[1] we took evidence from the Department on the action it was taking to tackle overpayment and stem the rising trend in benefit debt; improve its knowledge of its client base; and set realistic targets to improve debt collection and improve write-off.
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