Employment and Support Allowance Contents

2The impact of the error on claimants and the taxpayer

Arrears and compensation

13.The Department told us it expects to pay a total of £340 million in arrears and for ESA payments to increase by £680 million by 2022–23 as a result of correcting its mistake. The Department estimates that it will pay around £5,000 per person in arrears to people affected by its error. However, over 20,000 of those most in need are owed around £11,500 and some as much as £20,000.34

14.This is not, however, the total amount of ESA the Department has underpaid. The Department intends to limit the arrears it pays claimants to the value of underpayments they have incurred since 21 October 2014, which it believes to be the extent of claimants’ legal entitlement.35 Under Section 27 of the 1998 Social Security Act, when the Upper Tribunal or court considers an appeal under social security legislation and establishes the relevant points of law, the law as established takes effect from the date of the court’s decision.36 The Department asserted that the Upper Tribunal decision on 21 October 2014 established relevant law and, therefore, creates a statutory bar to payment of arrears before this date.37 NAWRA questioned the Department’s logic given that the Department had already recognised its mistake in April 2014, some six months before the legal case in question was decided.38 An outstanding appeal and separate judicial review will test the Department’s interpretation of the law. If the Department’s interpretation of the law is confirmed, claimants will miss out on an estimated £100 to £150 million in underpaid benefits relating to the period before October 2014.39

15.The Department aims to pay people their arrears by April 2019. It told us that it set up a dedicated team of 400 staff in August 2017.40 The Department told us that expected this exercise to cost £14 million and that it is hopeful that it will not impact negatively on the service it provides to other ESA claimants.41 The Department explained that it is still developing some aspects of its process for contacting people and making payments and it is yet to finalise arrangements for contacting the next of kin of claimants who have died since the error took place.42 We asked the Department why it had taken so long to develop its procedures for claimants who have died. It told us that it wanted its approach to be as compassionate as possible. It also explained that getting in touch with people who do not have a next of kin identified on its system can be challenging.43 We were concerned that the Department has also yet to guarantee that large arrears payments will not count against claimants as part of any future claims for means-tested benefits. NAWRA explained that arrears payments which result in claimants having over £6,000 in capital could affect their eligibility for means-tested benefits in the future simply because the Department had paid their earlier entitlement as a belated lump sum and because of the type of error in this case.44

16.The Department has also not assessed how much in total claimants have missed out on because of the broader implications of its error.45 As well as the direct financial impact of being underpaid ESA, some people are also entitled to additional support, such as free prescriptions, help with dentistry costs and free school meals because they receive means-tested benefits from the Department.46 The Department has not assessed the amount that claimants would have received through these passported benefits had it paid them the correct type of ESA.47 NAWRA told us that some people have also been penalised by government bodies such as the NHS Business Services Authority for claiming passported benefits they thought they were entitled to; for example: receiving fines for claiming free prescriptions.48

17.We asked the Department whether it had considered paying claimants additional compensation for losses incurred because of its mistake.49 NAWRA asserted that people affected by the Department’s error should receive financial redress in addition to being paid their arrears. The Department told us that is does not intend to pay any additional money to claimants beyond paying them their arrears. It told us that it does not pay “blanket compensation” in a situation where a court has told it to interpret a piece of legislation in a particular way and that it has made no financial provision for this.50

18.The Department asserted that its decision not to pay claimants compensation was based on its concern that this could set a precedent which could put taxpayers’ money at risk. The Department explained that it had based this view on the principles set out in the HM Treasury Guidance, Managing Public Money, which sets out how Departments should use public money. We were not convinced by the Department’s assertion given that the Department has acknowledged that it made an error.51 We note that on the issue of remedies and compensation, Managing Public Money (Annex 4.14) specifically states that: “If their services have been found deficient, public sector organisations should consider whether to provide remedies to people or firms who complain.”52 It also states that: “when public sector organisations have caused injustice or hardship because of maladministration or service failure, they should consider providing remedies so that, as far as reasonably possible, they restore the wronged party to the position that they would be in had things been done correctly.”53

Communications with claimants

19.The Department issued letters and forms to claimants transferring from old incapacity benefits telling them of their entitlement and inviting those who thought they might be entitled to make a claim for income-related ESA. NAWRA told us that the quality of letters the Department sent to ESA claimants was “shocking”.54 The Department told us that its attempts to contact claimants had had some effect, as around 130,000 claimants who had been placed on contribution-based ESA initially subsequently also claimed income-related ESA.55 However, the Department accepted that its letters did not make clear that people could be substantially better off if they were also entitled to ESA on income grounds. Therefore, the advantages to claimants of providing the additional information needed for an income-related ESA claim may not have been clear.56 NAWRA also told us that many of the people affected by the Department’s error may not yet be aware of its significance for them despite media coverage.57

20.This poor standard of communication is not an isolated example. As Members of Parliament, we have had experience of attempting to decipher letters sent to claimants by the Department.58 NAWRA also provided us with an example of an anonymised letter sent to an ESA claimant, which was supposed to notify the claimant of a change in their benefit rate, but which did not say what this would be.59 The Department’s Accounting Officer admitted that even he did not understand all the letters his Department sends to claimants, citing an example of a confusing Universal Credit letter he had seen on a recent visit to a Jobcentre.60 We welcomed the Department’s acknowledgment that it needs to improve its communications.61

Tackling benefit underpayments and reducing fraud and error

21.The Department has set a target that it should underpay benefit claimants by no more than 0.9% of total spending on benefits.62 It failed to meet this and estimated that it underpaid claimants by 1% of benefit expenditure, equivalent to £1.7 billion.63 The level of underpayment varies across different types of benefit. The level of underpayment within ESA was 2.6% in 2017–18, compared to 0% or 0.1% for the state pension.64 We questioned whether the Department’s target is challenging enough, given that even had it met its target to reduce the level of underpayments 0.9%, this would not represent a significant improvement on performance in previous years. Underpayments were 0.8% of benefit expenditure in 2011–12.65

22.The Department agreed that the level of underpayments should be lower but argued that it also had to consider the costs of pursuing these cases. It could not tell us what level of underpayments or overpayments would be the optimum balance between awarding claimants the correct amount of money and the costs to the Department of identifying and correcting errors.66 The Department stated that it had recently strengthened its response to fraud and error by reorganising its fraud and error teams under a single director, creating a ‘heat-map’ analysis of the causes of fraud and error and by recognising the importance of prevention through good design of benefit systems and better use of data.67

23.We were surprised that the Department could not tell us in its oral evidence how many people were affected by the £1.7 billion of underpayments in 2017–18.68 Our experience as Members of Parliament and what we heard from NAWRA tells us that overpayments of benefit are pursued more quickly and vigorously than underpayments where the Department is slower to correct its mistakes.69 The Department told us that one of the main lessons from its underpayment of ESA has been to get better at drawing in legal advice from the start and understanding its legal obligations.70 Our view is that this continues to underplay its moral obligation to act promptly and comprehensively to make good its mistakes when they occur.71

34 Q 122, C&AG’s Report, para 2.14

35 Qq 100–101

36 C&AG’s Report, para 2.10

37 Qq 72, 78, 93

38 Q 22

39 Q 122

40 Q 86

41 Qq 111–113

42 Qq 106–109

43 Q 109

44 Q34

45 Qq 90, 101

46 C&AG’s Report, para 2.15

47 Qq 26, 100

48 Qq 8, 27

49 Qq 22, 133–134

50 Qq 101–102, 132–135

51 Qq 97–99

52 HM Treasury: Managing Public Money, Annex 4.14 (Remedy)

53 HM Treasury: Managing Public Money, Annex 4.144

54 Qq 3, 48

55 Qq 48, 49

56 Q 104

57 Q 8

58 Q 71

59 NAWRA (ESA0006)

60 Qq 69–71

61 Q 69

63 Department for Work and Pensions, Fraud and Error in the Benefit System: 2017–18 Preliminary Estimates, 17 May 2018

64 Qq 115, 119

65 Q 119

66 Qq 126–128

67 Qq 114–115

68 Qq 120–121

69 Qq 12, 71

70 Q 51

71 Qq 68, 82, 114, 117

Published: 18 July 2018