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These regulations provide the second option. They avoid creating anxiety and disrupting income flows for those people affected by the over-award of incapacity credits which would otherwise have followed if we took the first option. They also avoid unnecessary administrative work not only for DWP and HMRC, but also for local authorities. This approach recognises that such awards have been made and received in good faith, and it also recognises that some people may be placed in a difficult position if the awards were now to be revised. For example, people of pension age may be reliant on the level of income awarded to them, and financially it may not be as easy for them to make further contributions in retirement. They may also have taken this level of income into account in assessing how much money their spouse or civil partner will receive in the event of their death.
Similarly, people receiving bereavement benefit or extra state pension because of bereavement may be placed in a difficult position if the contribution record of the deceased spouse or civil partner is corrected and their benefit is reduced or withdrawn. As making further contributions to the deceased contributor’s account is not possible, some form of special action would be required to address this.
After careful consideration, the regulations were introduced to protect existing awards of state pension, incapacity benefit, jobseeker’s allowance, bereavement benefits and widows’ benefits which are based on
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Our estimate of the cases affected—30,000 underpaid and 90,000 overpaid—is no more than that. The estimates were based on limited information from a pilot exercise run by HMRC and, on the basis of that limited exercise, the annual cost of making good the underpayments is around £65 million and the amount overpaid around £90 million, which will decrease over time. We cannot be precise about the costs because of the interaction with income-related benefits, as I have explained. The administrative cost of £8 million that would be incurred without the regulations is also a broad estimate. It could be higher or lower depending on how complex it would be to correct the overpaid cases and invite and assess claims for pension credit and income support.
Lord Kirkwood of Kirkhope: My Lords, for the avoidance of doubt, will the Minister make it clear that the money to be found to make this good will not come from the National Insurance Fund but will be found within the department’s CSR over the next three years?
Lord McKenzie of Luton: My Lords, the administrative costs will have to come from the routine DWP DEL budget.
For example, a pensioner who received a state pension and pension credit might be no worse off if we were to calculate and reduce his state pension because that would lead to an increase in his pension credit. In other cases, the reduction in state pension would give rise to pension credit. Similarly, people below pension age who have been overpaid could have their benefit increased by claiming income support. Generally, when assessing the effect of the cost, we would expect that income support was in payment in up to 45 per cent of incapacity benefit cases and pension credit was in payment in about 65 per cent of state pension cases. The interaction with other benefits would therefore have a huge impact on the actual cost of correcting these cases. We will only know the true cost of correcting the underpaid cases once we have completed the exercise.
As I have said, the regulations deem the over-award of benefits to be legally correct, thereby avoiding the need to re-examine these cases. Although we are honouring existing awards of benefit, we recognise that the Government have a duty to ensure that errors in credits data are not perpetuated. For this reason, HMRC will correct national insurance records for those under state pension age so that future claims to contributory benefits can be correctly assessed. Where correcting the individual contribution record results in particular years being no longer qualifying years for state pension and other contributory benefits, HMRC will write to the individuals concerned advising them of their options and asking if they wish to pay any missing contributions. They will have six years to take up that offer, and payment of contributions will be at the rates that applied during the tax year concerned.
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The Government do not believe that it would be right to seek a saving in relation to future costs given the background to the issue. Just as the Government have a responsibility to people who have been underpaid, they have a responsibility to those who have been awarded too many credits and who, as a consequence, have been overpaid benefit but were denied the opportunity to make up shortfalls in their national insurance records at the relevant time. That has been the result of system and related procedural errors and is not the fault of the contributors.
People depend on the Government to advise them about their national insurance record so that they can make properly informed choices about how they may protect or increase their entitlement to benefits. Decisions about whether to apply for credits or pay voluntary contributions are influenced by the information provided by the relevant government departments, and it is likely that much of the amount referred to as a potential overpayment would have been properly payable now, had the system and procedures worked properly, as a contribution to contributory and income-related benefits.
Specific questions were asked, and I will try to deal with as many of them as I can. The noble Lord, Lord Skelmersdale, asked whether the Treasury had approved the orders. Of course; we sought and received the Treasury’s agreement to allow the orders to be made. The noble Lord, Lord Kirkwood, asked about recent announcements about 4,000 cases of double payment. That relates to a small number of cases—4,000, as he identified—out of 1.6 million cases where DLA or AA is combined with state pension and pension credit. In this instance, there appears to have been a breakdown in communication between the Disability and Carers Service and the Pension Service over the benefits paid to a small group of customers. Steps have been taken to prevent such duplicate payments occurring in the future. That is a separate issue.
Both noble Lords asked who the NIRS2 supplier was. Andersen Consulting, later Accenture, implemented the upgrade of NIRS1 to NIRS2. The current system is operated under the ASPIRE contract since January 2005. The noble Lord, Lord Skelmersdale, referred to the phrase,
and asked why there should be any extension beyond that. Testing has confirmed that the interface between the two computer systems has worked correctly since November 2005, but we have decided to look at all cases from 1993-94, the start of the strategy computer system, and go up to 2006-07 because it is just possible that some cases actioned after November 2005 could have had handling errors, although staff training has been improved.
Reference has been made to HMRC staff costs of £1.3 million. Those costs reflect the fact that those affected will contact HMRC about their national insurance record and the question of collecting and allocating class 3 contributions. I have dealt with the issue of the 4,000 duplicate payments. The noble Lord, Lord Kirkwood, asked about the SSAC. The
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That is the bulk of the issues that were raised. I will review the record and write further to noble Lords if necessary. The concerns raised by the Merits Committee and by noble Lords during the debate are recognised. We have resolved the issue that led to the errors and have acted in a balanced and proportionate way to put right the affected cases. We are firmly of the view that we have done the right thing by introducing the regulations, thereby avoiding unnecessary anxiety and distress for some 75,000 pensioners in particular. I hope that noble Lords will agree that in all the circumstances the only credible option now is to introduce the regulations.
Lord Skelmersdale: My Lords, that was an interesting speech from the Minister. He seems to have gained the impression in the preparation thereof that what the noble Lord, Lord Kirkwood, and I were complaining about was the existence of the order. Of course we are not; we are interested in the background, the follow-up and the previous activities of the two computer systems and the two departments.
Although the Minister explained carefully why the amnesty was going on for another two and a half years or so at the end of the period, he did not answer my question about why that period started so early. Am I to assume that it was in the year 1993-94 that the transfer was made from NIRS1 to NIRS2? If not, there seems to be no good reason for the period to start as early as it does.
Lord McKenzie of Luton: My Lords, the transfer from NIRS1 to NIRS2 took place in 1998, and that was certainly a key factor in the errors that arose. For the avoidance of doubt, I can say that checking is going on right back to that earlier period. In his presentation the noble Lord asked when NIRS2 was developed. I do not have a precise starting date, but it was clearly developed some time before 1998 because that is when it was actioned.
Earlier I did not answer the point about the OGC reviews and the red flags that were given to certain projects. The whole purpose of such reviews is for someone external to come in and look at the teams that are producing change, to check that their systems are up to scratch and that they are doing the testing and putting in all the arrangements that they should in order to deliver on the desired policies. The fact that from time to time there are red, or sometimes orange, flags is entirely consistent with what they are required to do, and is one of the Government’s safeguards.
Lord Skelmersdale: Yes, my Lords, it is of course part of government safeguards, and it should be part of Parliament’s safeguard on occasion to give the Government a green flag, an amber flag or a red flag. In this case, I think that the noble Lord, Lord Kirkwood, and I would agree that it is an amber flag; there is no way in which we can give it a green flag.
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Housing Benefit (Local Housing Allowance and Information Sharing) Amendment Regulations 2007
4.56 pm
Lord Oakeshott of Seagrove Bay rose to move, That an humble Address be presented to Her Majesty praying that the regulations laid before the House on 8 October be annulled (SI 2007/2868).
The noble Lord said: My Lords, following the analogy that we heard when discussing the previous regulations, I make it clear that we are not trying to wave a red flag at these regulations, although we certainly wish to wave a few amber flags around, raise some questions and get some answers from the Minister.
I make it clear that we welcome the evidence from the nine pathfinder areas that direct payments have risen to 84 per cent from an average of about 45 per cent before local housing allowance was introduced. We support the Government’s ambition to encourage financial responsibility and we recognise the evidence that financial inclusion is an important step towards finding employment and getting off benefits. However, we are not convinced that the local housing allowance policy will achieve these objectives when it is rolled out nationally and that proper provisions are yet in place to protect vulnerable individuals.
The DWP Housing Benefit Local Housing Allowance Guidance Manual, for use by local authority housing benefit officers, states very clearly:
“You will not be expected to be pro-active in identifying someone as potentially an unlikely payer”.
Vulnerable individuals are therefore responsible for presenting themselves as likely rent defaulters. How can that be right for mentally impaired people, illiterate people, those who cannot speak English or those who are tackling drinking or gambling addictions? Cases can be referred also by landlords, friends or families, but these people may after all have their own agendas. As part of the purpose of the reform is to remove the stigma associated with housing benefit, how will landlords know that tenants are receiving LHA and be in a position to raise the alarm about non-payment? Cases can be referred also by advice, welfare or social services.
As my noble friend Lord Addington proposed in Committee, we should assume that these vulnerable groups will struggle to handle their financial affairs. Changes to direct payments should therefore take place only once an assessment has been made that they can cope. In its current form, payment to landlords and a case assessment are not automatically triggered until rent has fallen into eight weeks of arrears. That is a long time for money to be misspent and for relations between landlord and tenant perhaps to break down.
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In some pathfinder projects, benefit officers were keen to intervene early in cases where rent went unpaid, rarely waiting for the eight weeks of arrears before triggering an investigation. Is there not a danger that sharp landlords will spot that, by alleging rent arrears, they can get their income guaranteed? Evidence from the pathfinders suggests that there is a problem with the appeal system being clogged with allegations of arrears.
Housing benefit officers are encouraged to become proactive only once direct payments have been suspended. The DWP guidance manual states:
“If you decide that direct payments are appropriate, you should set a diary date in order to conduct a review of your decision, not exceeding 12 months, to look again at the decision”.
That review process is expected to be repeated annually. For the most vulnerable individuals, for whom direct payments will never be appropriate, that can represent an annual ordeal of uncertainty. For LHA to prove effective, a more reliable and proactive system is required to identify vulnerability. The objectives of the reform may be admirable, but the assumption that direct payment is suitable in all but the most extreme cases is wildly overoptimistic.
Why do the Government assume that this change to LHA will represent a major lifting of the administrative burden? Some aspects of the reforms are genuinely simpler, such as calculating rent levels from local median estimates, for example, rather than the actual rent paid. Other parts are hideously complicated, as when HB officers are expected to take account of other income received by the tenant and the impact of other people living in the household, for example. The conclusion from the pathfinder evaluation is, I am bound to say, very carefully worded. It says:
“On balance the net effect administratively of the LHA ... in the longer run ... ignoring set up costs and some specific implementation difficulties, is probably positive, but it is unlikely that this constitutes a ‘substantial’ advantage to HB administration and delivery”.
That is not exactly what I would call a glowing reference.
We simply cannot make fundamental reforms of this flawed system on the cheap. Any reform of housing benefit delivery must be properly resourced and take account of large numbers of vulnerable cases requiring sensitive handling. The more complicated estimates of rent settlements, which in most cases increase income, such as the impact on others living in the house, will be overlooked—or there is a danger of it—if we do not put enough resources into reforms. The evidence by one HB officer to the pathfinder evaluation made the point well. He said:
“Dealing with claimant vulnerability has ... frequently proved to be difficult, time-consuming and resource intensive, and significant efforts have had to be made to set up and maintain arrangements with other departments and agencies in order to adequately fulfil this function”.
What assessment have the Government made of the extra burdens that they are placing on our already strained advice services? The LHA guidance manual instructs local authorities to refer cases to advice services for almost any problem. If direct payment has been suspended, advice services will work with individuals so that it can be restored. If vulnerability has been identified, local authorities are instructed to
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The experience in pathfinder areas has been largely positive, to be fair, with local authorities and welfare and advice services working together so far. However, it is wishful thinking to presume that that will be repeated everywhere after national rollout. As Citizens Advice said in its submission to the evaluation, it is,
- “worth noting that all the pathfinder authorities had made a choice to take part in this pilot, and were also well resourced and supported by DWP. They were therefore highly committed to making it work. These conditions will not be present in national roll out”.
Indeed, wider Citizens Advice and Shelter evidence on delivery across the country,
- “leads us to believe that it is very unlikely that this level of activity and commitment will voluntarily be undertaken by every HB department”.
That is Citizens Advice—and if that organisation does not know what it is talking about, I do not know who does.
We on these Benches have warned the Government time and again that advice services funding is hampered by ring-fencing of funds and reliance on a plethora of different forms of funding, in some cases almost in penny packets. We have had this same problem come up under the whole question of generic debt advice and pensions. Individuals who are most likely to struggle under the LHA provisions are also most likely to need additional advice, whether on debt, disability, welfare, employment or immigration. Can the Minister assure me that increased funding for advice services will incorporate provisions for general advice as well as specific housing benefit advice?
This is a missed opportunity to reform the arbitrary unfairness experienced by people under the age of 25, as we discussed in debates on the Welfare Reform Bill. The room rates for single people, who are statistically far more likely to be in poverty already, and the most vulnerable to drugs and homelessness, are simply inadequate. The pathfinder evaluation reported that across the nation the rate at which the LHA is set is generally considered fair and adequate to meet housing needs, except the rate set for shared rooms, which is the rate to which under-25s are constrained.
Citizens Advice found that 87 per cent of single-room rent claimants have faced a shortfall between housing benefit received and the rent levels that they pay. The research says that this inevitably,
- “puts young people at greater risk of social and financial exclusion, making it more difficult for them to find and sustain employment”.
How can it be right that local housing allowance fails to help young people at their most vulnerable when they are starting their careers and living away from their families? I beg to move.
Moved, That an humble Address be presented to Her Majesty praying that the regulations laid before the House on 8 October be annulled (SI 2007/2868).—(Lord Oakeshott of Seagrove Bay.)
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Lord Skelmersdale: My Lords, I am grateful to the noble Lord, Lord Oakeshott, for bringing these orders on the new local housing allowance to our attention this evening. I certainly do not agree with him, as he knows well, on the last point that he made in his introductory speech.
I noticed that all the orders were made on 2 October this year. My first question is rather technical but, given my interest in statutory instruments, it is this: we have one Explanatory Memorandum covering all four instruments. Why then were four instruments required in the first place, especially as Nos. 2868 and 2869 have exactly the same title? Surely, these and the consequential amendment regulations could have been combined. In other words, we could have had not four in one, but three plus one.
To turn to the nuts and bolts of the orders, my party's position on local housing allowance was set out in Grand Committee on the Welfare Reform Bill by my noble friend Lord Taylor of Holbeach. Pilots—I do not like the word pathfinders—were already in existence when that debate was held on 1 March and our concerns revolved around the Government's intention to allow housing benefit claimants to handle their own housing benefit rather than having it paid direct to the landlord.
We felt and still feel that, even though the pilots have shown, for a limited period anyway, that double the number of self-handlers were capable of paying rent subsidy and indeed did—rent subsidy is housing benefit—there would be those customers who, for many reasons, do not hand the benefit to the landlord. I understand that that figure is about 16 per cent of all housing benefit recipients.
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