Draft Social Security (Civil Penalties) Regulations 2012
The Committee consisted of the following Members:
† Aldous, Peter (Waveney) (Con)
† Crabb, Stephen (Preseli Pembrokeshire) (Con)
† Fullbrook, Lorraine (South Ribble) (Con)
† Grayling, Chris (Minister of State, Department for Work and Pensions)
† Hain, Mr Peter (Neath) (Lab)
Johnson, Alan (Kingston upon Hull West and Hessle) (Lab)
† Jones, Graham (Hyndburn) (Lab)
† Lloyd, Stephen (Eastbourne) (LD)
Paisley, Ian (North Antrim) (DUP)
† Phillipson, Bridget (Houghton and Sunderland South) (Lab)
† Poulter, Dr Daniel (Central Suffolk and North Ipswich) (Con)
† Selous, Andrew (South West Bedfordshire) (Con)
† Smith, Mr Andrew (Oxford East) (Lab)
Stringer, Graham (Blackley and Broughton) (Lab)
† Timms, Stephen (East Ham) (Lab)
† Tredinnick, David (Bosworth) (Con)
† Vickers, Martin (Cleethorpes) (Con)
† Williams, Roger (Brecon and Radnorshire) (LD)
Mark Etherton, Committee Clerk
† attended the Committee
The following also attended, pursuant to Standing Order No. 118(2):
Brown, Mr Nicholas (Newcastle upon Tyne East) (Lab)
First Delegated Legislation Committee
Tuesday 19 June 2012
[Mrs Anne Main in the Chair]
Draft Social Security (Civil Penalties) Regulations 2012
10.30 am
The Minister of State, Department for Work and Pensions (Chris Grayling): I beg to move,
That the Committee has considered the draft Social Security (Civil Penalties) Regulations 2012.
It is a great pleasure to serve under your chairmanship, Mrs Main, for what I suspect is only the first of several debates that the right hon. Member for East Ham and I will have in the coming months on the rather large number of regulations required to deliver the detail of our welfare reforms. I hope that today’s debate will be one of the simpler ones, as the principle underlying the measure is very straightforward.
The draft regulations were laid on 14 May. I can confirm that, in my view, the statutory instrument is compatible with the European convention on human rights.
The new regulations support the new powers introduced by section 116 of the Welfare Reform Act 2012, which allows both the Secretary of State and local authorities to impose civil penalties. In future, when the appropriate authority is satisfied that an overpayment is the result of the claimant’s culpable failure or negligence, a civil penalty may be imposed in addition to the overpayment being recovered. The Act also provided for the amount of the penalty to be set by regulations. As I said during our debate on the associated civil penalty primary powers, we are committed to eradicating wherever possible the £1.3 billion of social security benefits overpaid each year due to claimant errors. We remain committed to that aim and the draft regulations support its achievement. Let me quickly run through the details.
In the regulations, we have set the civil penalty at £50 in all three cases. That was previously announced in Government publications and was debated in both Houses during the passage of the 2012 Act, so I doubt that the level of the penalty comes as any great surprise today. We have tried to take a “tough but fair” approach to setting the amount of the penalty. By setting it at £50, we have ensured that it is significantly less than the harsher punishments and consequences available for benefit fraud offences, which reflects the fact that we are dealing with failure to take proper care of a benefit award, not with fraudulent behaviour. We expect people to act responsibly and to deliver timely information to the Department for Work and Pensions, so that the correct amount of benefit payments can be set. If people do not let us know about material changes in their circumstances, we feel that there should be consequences for that unacceptable behaviour. We believe that £50 is a sufficient amount and an appropriate
consequence, which will make claimants more personally responsible for overpayments that result from their behaviour and encourage a positive change in their future dealings with the Department. The penalty should be simple to calculate but, more important, it should be uncomplicated for the claimant to understand and recognise. A flat rate £50 civil penalty for all three penalty provisions allows that.I am impressed by the calibre of the Committee’s membership— I see a great deal of seasoned experience, particularly on the Opposition Benches. I give them the absolute assurance that we will always consider the individual circumstances of the case when deciding whether or not to impose a civil penalty. It will not be automatic; our staff will be given discretion. It is right that when people do not fulfil their responsibilities, there are consequences. Equally, it would not be right for there to be no discretion in implementation of the measure. That discretion will clearly be there.
The draft regulations are clear and simple, as is their purpose. We have to aim to stop losing as much as £1.3 billion each year through claimant errors. We have to aim to stop claimants thinking that it does not matter what they tell or do not tell the Department or local authority about their claims. If, for example, a claimant has a new partner living with them, that has a material impact on the household’s financial circumstances and they have a duty to tell us; if they do not do so, they must face a consequence. We aim to stop claimants thinking it is acceptable for them not to respond to a request for information, or to delay telling the Department or local authority about a change in circumstances, and so needlessly incur overpayments. This simple penalty is all about helping us to achieve those aims. Those claimants who continue to fail to take proper care with their benefit claims will in future risk incurring a £50 civil penalty, on top of having to pay back the overpaid money. That is a straightforward, simple principle that they should all understand. People will be aware of the consequences and we hope that, as a result, they will do a better job of telling us when they are or are not entitled to a benefit. I commend the draft regulations to the Committee.
10.36 am
Stephen Timms (East Ham) (Lab): I am delighted to be serving under your chairmanship for the first time, Mrs Main. Like the Minister, I look forward to many similar debates in the next few months, and I too am encouraged by the weight of expertise and experience on the Opposition Benches this morning.
As the right hon. Gentleman says, the regulations build on provisions in the Welfare Reform Act that permit the DWP and local authorities to introduce civil penalties. I am grateful to him for his explanation of the thinking behind them. The explanatory memorandum states that the arrangements are
“modelled in part on the current civil penalty regime administered by Her Majesty’s Revenue and Customs”.
Will he say a little about the similarities and the differences between the two? There certainly appears to be a difference in scale in the number of penalties it is envisaged will be issued. I am not sure why that is. There may be other differences as well, so I would be grateful for his comments.
“In so far as these Regulations relate to housing benefit and council tax benefit…consultation has taken place with organisations appearing to the Secretary of State to be representative of the authorities concerned.”
I am sure the right hon. Gentleman is well aware of this, although it is no longer within his Department’s responsibility, but the arrangements for localisation of council tax benefit are set to be the first train crash in the welfare reform process, now that the IT suppliers have said that they cannot implement the new council tax benefit systems in time for April next year. I fear that that will be the first of numerous train crashes on the way. Will the Minister tell us which organisations were consulted on that aspect of the regulations’ application?
The Minister gave a straight-bat explanation of the regulations’ effect. I thought he was a little blasé, because £50 is quite a substantial penalty for people who are living solely on benefit income, and it is a fairly large amount of money for others. I suspect that, as we said in the Committee scrutinising the Welfare Reform Bill, the tenor of our discussion would be different if he were announcing a £50 penalty to be imposed every time a Member of this House made a mistake on their Independent Parliamentary Standards Authority submission. We should not lightly skip over the seriousness of the penalty.
I do not intend to object in principle to the penalties. We did not vote against the provision in the Public Bill Committee. We are told that £1.3 billion of taxpayers’ money is lost in overpayments on benefits and tax credits as a result of errors made by applicants, and I will not object to a penalty being imposed when recipients of benefits have not taken reasonable steps to avoid being overpaid. I do, however, have several questions about how the penalties will be implemented, and I would be grateful to hear the Minister’s answers.
In the Public Bill Committee, the Minister was pressed by my hon. Friend the Member for Westminster North (Ms Buck) on the number of penalties the Department expects to issue. He replied:
“We expect that the number of cases resulting in a £50 civil penalty in each year…rounded to the nearest thousand, will be in the region of 513,000, 542,000, and 571,000. We estimate that, of those claimants who incur an overpayment related to customer error each year, around 40% will be likely to incur a penalty. That means that four in every 10 mis-declarations to the Department are likely to lead to a civil penalty.”––[Official Report, Welfare Reform Public Bill Committee, 19 May 2011; c. 1041.]
That is an awful lot of penalties—well over half a million every year. As my hon. Friend pointed out in Committee, in 2009, under the HMRC system, which we are told has to some extent inspired the proposal we are discussing, there were only 1,221 such penalties. We are talking about a hugely larger number of penalties.
According to the figure given to us, it is expected that the arrangements will yield £30 million a year in civil penalties. It is a little hard to understand why that number is so enormous, particularly given that throughout the debates we have been assured that one of the main reasons behind what the Government are trying to do is to simplify the system. If, under tax credits, which the Conservative party criticises for their complexity, it has been necessary to issue only 1,221 such penalties in a year, why are we now talking about more than half a million penalties per year for universal credit? Is it really
going to be so difficult for people to get the system right, given that we have been told all along that it is going to be much simpler?How did the Department come up with the estimate that 40% of customer-error overpayments would lead to a penalty? Why is that proportion so much higher—hundreds of times higher—than has been the case with tax credits? Does the Minister still stand by the estimate that he gave the Committee? He expected more than half a million penalties to be issued and paid every year.
The explanatory memorandum also tells us—the point was made by the Minister in Committee as well—that no targets will be set in relation to the number or value of civil penalties imposed. It would helpful if the Minister confirmed that and gave us a little information on whether the £30 million that the measure is intended to raise is hard-wired into the Department’s budget. It might be reassuring if it was not; if the Department was pretty relaxed and it turned out that the figure was a lot less than £30 million, that would give us some reassurance.
Under the current Secretary of State and Ministers such as the one with us this morning, the Department has been very much in favour of increasing the flexibility and decision-making power of Jobcentre Plus staff, and there is a lot to be said for that. This morning, the Minister has emphasised that the imposition of a penalty will not be mandatory. We understand that penalties will be imposed when reasonable steps have not been taken, but we need to know how Jobcentre Plus staff are expected to decide whether reasonable steps have been taken. Will he issue guidance? Is draft guidance available already? I agree with the Minister that there is a lot to be said for flexibility in service delivery, although given how things are going at the moment, with staff reductions and increased numbers of people claiming jobseeker’s allowance, flexibility in practice is getting very constrained in jobcentres.
Nevertheless, there is a lot to be said for flexibility in service delivery. But if jobcentre staff are to be flexible on penalty charges, that looks like a recipe for potentially arbitrary and inconsistent decisions and then for a large burden of appeals. Given the enormous burden on the appeals system at the moment, from the serious problems resulting from the overloading of the work capability assessment process and the assessment for employment and support allowance, a big number of appeals from another source could be a serious problem. If we are expecting the Department to issue more than half a million penalties a year, it would not take many appeals against those penalties to place a significant additional burden on the appeal system. The proportion going to appeal will certainly be greater if the decision to issue a penalty becomes a matter for jobcentre staff and how they feel on the day. Can the Minister give us more information about what guidance will be given to staff on whether to issue a penalty in a particular situation? Has he estimated the expected level of appeals and the costs arising from that? Will there be a judicial option, or a tribunal, if the Department refuses an initial appeal? How will appeals work?
The explanatory memorandum states that there will be just one outcome decision for the overpayment and the civil penalty, where one is applied, and claimants will then choose whether to appeal either or both of those decisions. Will the Minister assure us that the wording of letters to people about this will be as clear as
possible so that they are aware that they can dispute only one of the decisions? For example, a claimant might agree entirely that there was an overpayment, but may feel that, nevertheless, they took reasonable steps to avoid an error and that the penalty was therefore unwarranted.The memorandum also states that penalties will be recovered by deductions from benefits, as is currently the case for social fund loans or overpayments. Can the Minister clarify to which elements of universal credit such a deduction would apply? We know that different elements go into universal credit, so the element to which that deduction applied could have an effect on the claimant.
Civil penalties will also be available to local authorities, presumably as a tool to reduce housing benefit overpayments. How will that system operate? Will it be a voluntary matter for local authorities? I have already asked the Minister which organisations he has consulted, but can he tell us how he will ensure that there are adequate appeals safeguards for claimants who are issued penalties by those authorities?
I am keen to hear the answers to my questions. As I said, we did not vote against the provisions in the Bill Committee and if the Minister can satisfy us today, it will not be necessary to divide the Committee. However, I am sure he would agree that we need to acknowledge that the issue of more than half a million £50 penalties every year is not something to be taken lightly.
10.49 am
Chris Grayling: In response, let me run through the questions raised by the right hon. Member for East Ham. He talked about the impact of a £50 charge and the number of people identified in the documentation relating to the regulations as the potential payers of that charge. The documentation contains an estimate of what we think will happen, but there is no reason for anyone to pay the penalty. If they take the trouble to get it right, no one will be subject to an overpayment. In response to his question about the HMRC, it is rather like its approach to our tax returns. If we do not submit our tax return by the due date, we pay a £100 fine, unless we have very good reason. We have adopted the same principle in this case. Of course, there is no reason to pay that fine—we can submit our tax return in time. If people deliver the right information to the DWP, they will not be liable.
Stephen Timms: I take that point, but given that only just over 1,000 of these civil penalties are issued for tax credit recipients, why are we talking about half a million being issued under the regulations?
Chris Grayling: Our estimates are based on current experience. We already have the experience that has led to the figure of £1.3 billion for error. That gives us a clearer idea of the number of people who submit inaccurate evidence to the Department each year. Of course, I hope that no one pays the £50 penalty charge because its introduction sent a clear message to claimants that they need to get the information right—that they should get it right. The right hon. Gentleman talked about
hard-wiring, but a firm expectation of penalty charges cannot be hard-wired into a budget. One can estimate what revenue one can expect from a measure, but there are never any absolute guarantees.Stephen Timms: May I press the Minister a little further on this point? If just over 1,000 penalties a year are issued for tax credits, he must be envisaging a very different approach to the penalties applying to universal credit. What is the difference that will lead to 500 times as many penalties being imposed?
Chris Grayling: The main reason is that the case loads of DWP and HMRC are massively different in terms of volume of data handled. We base our estimates on what we currently believe is the likely number of incorrect submissions made to the Department, which is based on our current experience wrapped up in that £1.3 billion figure. My hope is that we will not see that level of penalties, because that will be an indicator that the policy is working and that the overall level of error is coming down. We put an estimate in the books, saying that is what we think will happen, based on our current experience of the number of people who deliver inaccurate data to us; but the aim of the policy is to clear that up quickly so that we get proper and accurate submissions.
The right hon. Gentleman asked about council tax benefit. We consulted with all four local government associations; we have also talked to IT suppliers. I hear what he says about lack of confidence and train crashes. I suspect he is a bit jumpy about train crashes, having been in government when his party went through so many of them, but the current reality is that our projects are on time and on budget. The DWP is on track to deliver universal credit and welfare reform; the Work programme is already well under way, as is the incapacity benefit and employment and support allowance reassessment. In the months ahead, I am sure we will have some lively debates on whether he judges those programmes to be successful, but I have to say that, looking around, I see no train crashes on my horizon.
Stephen Timms: The Minister must say a little more about the train crash in this area. The IT suppliers have said that they cannot now implement new IT systems in time for the introduction of localised council tax benefit next April. The idea was that the change would save the Government £500 billion, but it is now unclear where that sum will come from. I think that does indeed count as a train crash.
Chris Grayling: Of course, the right hon. Gentleman is anticipating something he thinks will happen, rather than what is actually going to happen, and we will have to debate it at the time. It is not a matter for him in his shadow role or for me as a Minister. We have systems in place to provide support to local authorities, should we need to do so, but I am confident that local authorities will deliver some exciting and innovative schemes. Some of our discussions with them suggest that they are being highly innovative in their approach. As I said, we have consulted local authorities on this change, particularly through the four local authority associations.
The right hon. Gentleman asked about the scale of the £50 penalty. We already sanction people in respect of one or two weeks of their benefit payments as a matter of course for, for example, failure to attend the
fortnightly signing-on interview, so the penalty is by no means out of kilter with the norm in the benefits system. Yes, it is designed to have an impact on the pocket, because we want people to say, “Ah, I’d better get this right so I don’t have to pay the penalty charge.” It has been set not to cause long-term financial damage to a household, but to have an impact on them and to create a real deterrent—as, indeed, does the system of sanctions operated under both his party’s Government and ours.The penalty is not aimed at a simple, basic mathematical error that anyone could make. It is about, for example, a claimant failing to declare that they have a new partner in the household or that their circumstances have materially changed—failures for which we might not want to prosecute, but which constitute a clear breach of a person’s duty and responsibility to keep the Department informed about their circumstances.
We stand by the estimates. There are no targets for the number of penalties imposed, but I have stated what we believe, based on current experience, will be the approximate number. The decision making will be all about common sense. The right hon. Gentleman asked about guidance. There is guidance for decision makers and for staff in all areas of the Department’s operations, and the area the regulations deal with is and will be no different, but the key is to trust our front-line staff to apply common sense. If someone makes a basic arithmetical error that they clearly did not intend to make, I would not expect a member of staff to sanction them; if someone fails to declare a significant change in their circumstances, I would—but no two cases are the same. It is very much down to front-line staff to decide what is right and what is wrong in a particular case. That is no different from what happens now: staff already have that flexibility to decide how to deal with a particular claimant—whether to refer them for sanction or for mandatory work activity, for example. Our whole approach reflects our belief that it is much better to trust the member of staff who is dealing with the individual than to set rules that do not really work in an environment where one size most definitely does not fit all.
The right hon. Gentleman asked about appeals. In this process for the application of a penalty, there is no separate decision letter. Individuals will receive a single letter stating how much was overpaid and how much they need to pay back, and that, in addition, a penalty charge is to be levied. They have the freedom to appeal in relation to both elements—the overpayment or the penalty charge. We do not believe that there will be an
impact on the appeals process, because people are already able to appeal against the overpayment and the requirement to repay. We do not expect a material difference between the people who say, “This isn’t fair. I shouldn’t be asked to repay because this wasn’t my fault,” and go to appeal now, and those who will do so in the future, and do so also to recover the penalty charge.Stephen Timms: Surely there will be people who feel that they took every reasonable precaution to avoid giving incorrect information and who, although they accept that they need to repay the overpayment, would, in my view, have pretty good grounds to appeal against the penalty.
Chris Grayling: I have experienced such cases, as will the right hon. Gentleman in his constituency casework, where somebody feels they did the right thing. They are likely to appeal against the decision because they feel it is not their fault but the Department’s. Basically, we do not expect a material impact on the appeals system to arise from the regulations.
The deduction will be made from the universal credit payment as a whole; it will not be deducted automatically from the basic amount, because the person may not be receiving the basic amount. It may be someone who is in work and receiving a housing component, but who does not tell us about a material change in their circumstances. It cannot be applied automatically to one part of the universal credit and not another. The £50 penalty must apply in a variety of circumstances, so it is impossible to say that it will only ever be deducted from the basic amount. The person involved may have reached the point on the income scale where they receive predominantly a housing component, not a basic amount. The penalty must apply to all levels—we are not saying, “Right, it comes from that and nothing else.”
I think I have responded to most of the questions the right hon. Member for East Ham raised. I am grateful to him for his comments and that he supports the simple principle behind the measure. I remember that he did not oppose it in the Committee on the Welfare Reform Bill. No doubt there will be many lengthy debates on the detailed regulations in the months ahead. I am glad that this is not an instrument on which we have needed to take the full hour and a half available to us.