Department for Work and Pensions Accounts 2019–20 Contents

3Debt

Rising debt levels

27.The Department’s accounts show that as at 31 March 2020, claimants owed it £5.3 billion from benefit overpayments (£2.6 billion), benefit advances (£1.0 billion) and Tax Credits (£1.8 billion). This represents a significant annual increase of 39% (£1.5 billion) on the £3.8 balance owed as at 31 March 2019. Other amounts owed, such as those from Social Fund loans, are not included in these figures.54

28.Evidence suggests that the amounts claimants owe from benefit overpayments, benefit advances and Tax Credits are all likely to increase further in 2020–21. The Department temporarily suspended most debt recovery in March 2020 and reintroduced the recovery of new overpayments in late September.55 With recovery action paused and a surge in new claims at a time when fraud and error controls had been relaxed, it is very likely amounts owed from benefit overpayments will have risen. The amounts due from benefit advances is expected to increase as the Department reports that ‘from 1 March 2020 to 26 May 2020, 1,185,240 advance payments were issued’ (around 971,420, are new claim and benefit transfer advances). Around £1.2 billion of Tax Credits debt was transferred from HM Revenue & Customs to the Department in 2019–20 as claimants moved onto Universal Credit. This will continue as customers with Tax Credit debt either make claims to Universal Credit or are ‘migrated’ from Tax Credits to Universal Credit.56

29.We are concerned about the risk associated with trying to reclaim an overpayment and the time it takes to recover an overpayment. The Department told us that it has “very good and wide-ranging powers in terms of debt recovery” and that “there are cases where things are written off, but they are exceptional cases”.57 However, around £290 million of non-recoverable benefit overpayments were written-off in 2019–20, with an additional £7 million relating to customer fraud also written-off.58 Although there is a possibility (not certainty) to recover from State Pension, this could be years or decades away.59 The Department’s accounts show that it anticipates that it will not be able to recover a significant portion (44%) of its existing benefit overpayments and Tax Credits debt, recognising a £1.9 billion impairment in its accounts. It reported that ‘around £1.0 billion in benefit debt (this is debt accrued over time) was recovered by the Department and Local Authorities in 2019–20’.60

Interacting with vulnerable claimants

30.Fraud and error have an impact on people’s lives; when the Department recovers overpayments, this can lead to problems for claimants who face deductions from their income, whereas underpayments mean that households do not get the support they are entitled to.61 The Department informed us that it ‘carefully considers’ whether there are cases of hardship, in which case it might recover at a much lower rate or pause recovery. It added that it will be starting a new initiative next year called ‘Breathing Space’; to make sure that where it has vulnerable people, it is looking at whether they are able to payback when the Department needs to make a deduction.62 The Department’s approach to vulnerable claimants continues to be a concern and is an area where the previous Committee also made recommendations for improvement.63

31.For a means tested benefit such as Universal Credit, people entitled to receive the benefit will be those in society with lower incomes and savings.64 The National Audit Office’s (NAO’s) recent study on Universal Credit: getting to first payment found that ‘the Department does not have all the information it needs to track vulnerable claimants and ensure its support is effective.’ NAO’s analysis of claims due for payment from January to September 2019 found that people with low incomes or whose claim includes additional costs, such as costs for a disabled child, are more likely to have deductions applied to their first Universal Credit payment to cover advance payment and other debts. Its analysis also found that deductions can be substantial and are more likely to be so for low income claimants; 45% of Universal Credit claimants on low incomes have 20% or more of their personal allowance deducted in the first assessment period, in contrast to the 27% average across all claims.65

32.The Department reports that it is able to identify claims impacted by its temporary easements to controls, and that therefore it can revisit these claims to raise any resulting over (or under) payments that might have occurred; it reports that it will be starting this work in 2020–21.66 The Department has a record of acting slowly to identify and correct underpayments. NAO’s Investigation into errors in Employment and Support Allowance (ESA) in 2018 showed that the Department underpaid an estimated 70,000 claimants (at the time of reporting) who had transferred to ESA from other benefits; the error related to people who may have been entitled to income-related ESA but were instead only awarded contribution-based ESA, and therefore may have missed out on premium payments. Although the issue started in early 2011, it took until July 2017 for the Department to recognise that it had a legal responsibility to identify the people affected and develop a response.67 As at January 2020, the Department has had to repay £589 million to 112,000 claimants that had been underpaid as a result of this error.68

33.In response to COVID-19, many staff within the Department’s Counter Fraud and Compliance Directorate were redeployed, meaning the Department temporarily paused compliance work.69 As it restarts its compliance activity the Department should be aware of the lessons from NAO’s Investigation into overpayments of Carer’s Allowance in 2019. This found that the Department’s failure to commit sufficient resources to detecting overpayments and a backlog in referrals led some overpayments to not be detected for years, so that when they were detected, the claimant owed so much that they could not reasonably hope to repay it: for example, at the extreme end of this, 133 individuals owed over £20,000 which will take over 34 years to pay back if it is deducted from their benefits. The NAO also found that even when recovery plans were established, it took a significant period for the backlog to be managed back down to normal levels; in September 2017 the Department introduced its first recovery plan for new Carer’s Allowance claims, as at March 2019 the backlog for processing new claims was still above the level the it considered as a ‘manageable workload’.


54 DWP ARAC 2019–20, page 224

55 C&AG’s Report, Departmental Overview 2019–20: Department for Work & Pensions, 13 October 2020, page 16

56 DWP ARAC 2019–20, pages 24, 76–77, 218

57 Qq 33, 34

58 DWP ARAC 2019–20, page 175

59 Q 33

60 DWP ARAC 2019–20, pages 72, 225

61 DWP ARAC 2019–20, page 186

62 Q 33

63 Committee of Public Accounts, Universal Credit, Session 2017–19, HC 1183, 26 October 2018, recommendations 2 and 3

64 Gov.uk, Universal Credit guidance (eligibility) webpage, https://www.gov.uk/universal-credit/eligibility (accessed at 05/10/20)

65 C&AG’s Report, Universal Credit: getting to first payment, Session 2019–21, HC 376, 10 July 2020, pages 13, 29, 30

66 DWP ARAC 2019–20, page 76

67 C&AG’s Report, Investigation into errors in Employment and Support Allowance, Session 2017–19, HC 837, 21 March 2018, pages 6 and 8

68 Official Statistics, January 2020: ESA underpayments: Forecast numbers affected, forecast expenditure and progress on checking, https://www.gov.uk/government/publications/esa-underpayments-progress-on-checking-january-2020/january-2020-esa-underpayments-forecast-numbers-affected-forecast-expenditure-and-progress-on-checking, (accessed on 15/10/20).

69 DWP ARAC 2019–20, page 193




Published: 18 November 2020