Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Decisions and Appeals) Regulations 2013

Motion to Approve

9.18 pm

Moved by Lord Freud

That the draft regulations laid before the House on 10 December 2012 be approved.

Relevant documents: 15th Report from the Joint Committee on Statutory Instruments, 24th Report from the Secondary Legislation Scrutiny Committee.

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The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, these regulations were laid before the House on 13 December. I confirm to the House that these provisions are compatible with the European Convention on Human Rights.

The decisions and appeals regulations deal with provisions that set out the framework for decision-making in universal credit, personal independence payment and contributory employment support allowance and jobseeker’s allowance. The existing decisions and appeals regulations are tried and tested and are considered still fit for purpose, even in the “new world” of welfare reform. For UC and PIP to work as we intend, both technically and in terms of protecting claimants’ rights and welfare, the benefits require a strong underpinning both at the initial decision-making stage and where decisions are disputed. The regulations we are considering provide just that.

I will focus on those issues that I believe will be of most interest to noble Lords because they are both new and of significance. The first relates to mandatory reconsideration, provided for in Section 102 of the Welfare Reform Act 2012. Currently, a claimant can ask for a decision to be reconsidered by a decision-maker, and this process may result in a revised decision. In practice, however, many people do not do so and instead make an appeal from the outset. This is more costly for the taxpayer, is time-consuming, stressful for claimants and their families, and, for a significant number of appellants—some 40% of all appellants are successful—unnecessary. I say this because this success is on the back of new evidence presented at the tribunal.

We need a process that enables this evidence to be seen or heard by the decision-maker at the earliest opportunity. It is accepted that this will not mean that all decisions will be changed and appeals will be unnecessary, but we should at least have a process that allows this to happen. Mandatory reconsideration does just that. It will mean that applying for a revision will become a necessary step in the process, before claimants decide if they still wish to appeal.

Importantly, another DWP decision-maker will review the original decision, requesting extra information or evidence as required via a telephone discussion. If appropriate, they will then correct the decision. When this happens, there will be no need for an appeal—an outcome that will be better for the individual and better for the department. Claimants will of course be able to appeal to the tribunal if they still disagree with the decision, which will be set out in a letter detailing the outcome of the reconsideration and the reasons for it. We hope that because of the robust nature of the reconsideration and the improved communication that our reforms will result in, some claimants will decide that they do not need to pursue an appeal.

We ran a formal 12-week consultation on the proposals between February and May 2012, and published the Government’s response in September 2012. We received 154 responses, which included a range of suggestions on how we could continue to improve decision-making across all benefits. A number of respondents suggested that there should be a time limit on the reconsideration process. As set out in the Government’s response, we are not making any statutory provision for this. Some cases

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are more complex and require additional time—particularly, for example, where extra medical evidence needs to be sought. However, we recognise the concern here and are considering the scope for internal targets. It is a balancing act that we must get right. We will monitor developments closely and make adjustments accordingly.

I will mention another change linked to the mandatory reconsideration initiative. It will see all appeals being made directly to HMCTS and not, as now, to this department. The change brings the DWP in line with the appeals process for other departments. It is a positive move as it will allow HMCTS to book hearing dates much more quickly than is possible currently.

I turn now to the payment of benefit pending reconsideration and appeal. Noble Lords should be aware that there is no change to the current policy. Under existing provisions, if someone is refused benefit and requests a revision of that decision, benefit will not be paid pending the consideration of that request. It will be the same for mandatory reconsideration. Again, there is no change in relation to appeals. Under existing provisions, if someone appeals a benefit—save for ESA, which I will come to—no benefit is paid pending the appeal being heard. This must be right. It would be perverse to pay benefit in circumstances where the Secretary of State had established that there was no entitlement to it. As a principle, this will not be changed by the welfare reforms.

I turn now to ESA. At the moment, if someone appeals a refusal of ESA, it can continue to be paid pending the appeal being heard; this is not changing. What is changing is that there can be no appeal until there has been a mandatory reconsideration. So there will be a gap in payment. In that period—and I repeat that applications will be dealt with quickly so that this is kept to a minimum—the claimant could claim jobseeker’s allowance or universal credit. Alternative sources of funds are available. Of course, he or she may choose to wait for the outcome of the application and then, if necessary, appeal and be paid ESA at that point.

Another important policy change in these regulations relates to the payment of universal credit being made on a monthly basis. Reflecting this monthly payment, the effective date rule for change of circumstances will follow a whole-month approach—that is, that a change will be effective from the start of the monthly assessment period in which it occurs. Claimants will be expected to report any changes immediately. This will be made clear in their claimant commitment and in the decision notifications that they receive. Any change that is advantageous to the claimant must be reported within the assessment period in which the change occurred. Where the change is reported late—for instance, if the change occurred at the end of an assessment period or if there were special circumstances that caused the delay—our guidance and regulations on special circumstances will allow the decision-maker discretion to treat the late report as being in time. However, if the change of circumstances is reported late and does not meet the guidelines for accepting a late application, the change will only be applied from the beginning of the assessment period in which it was reported. This policy will ensure that the reporting of changes of

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circumstances is done in good time, that there is no incentive to delay reporting, and that the monthly universal credit award accurately reflects the claimant’s needs for the month ahead.

One area that I know will interest noble Lords is the issuing to claimants of decision notices, which have been developed taking on board claimant insight and stakeholder feedback. The decision notice will clearly set out a claimant’s monthly award and break down how the award has been calculated. In the long run and in the majority of cases, we intend that claimants should be notified of decisions relating to their universal credit award through the online channel.

I turn now to the guidance being drafted to support these and other regulations. I know that noble Lords have concerns about this and it was raised by the Secondary Legislation Scrutiny Committee. Noble Lords will be pleased to learn that the guidance has been placed in the Library—indeed, I am sure that many will have read the guidance. In relation to these regulations, guidance on revising decisions at any time and on the handling of late notification of a change of circumstances is available.

Finally, it should be noted that these regulations were referred to the Social Security Advisory Committee, which decided not to refer them for formal consultation but did invite comments informally. The comments received related to the time limit for mandatory reconsideration and the whole-month approach, both of which I have already covered. I commend the regulations to the House and ask noble Lords for their approval. I beg to move.

Lord Bach: My Lords, I thank the Minister for moving these regulations. This is clearly an important day for the future of our social security system, and the House has heard why so many of us believe this to be a day of shame for our country and its reputation as a civilised and just place to live and work.

I rise, on this particular regulation, certainly as no expert in the provision of the regulations that have gone before but as someone who has an interest, as I hope we all have, in ensuring that everyone has equal rights before the law—in other words, some real access to justice. In the Explanatory Memorandum to the regulations, paragraph 7.1 states:

“The Department for Work and Pensions … is introducing a new set of Decisions and Appeals Regulations to ensure that the decision-making and appeals framework which currently applies to all social security benefits applies to the new benefits introduced by the 2012 Act”.

No doubt the intent behind the regulations—it is a virtuous intent, at least in theory—is that for those wishing to challenge or appeal a decision there is a procedure to go through, as there always has been.

9.30 pm

So far, so good, but something very big is missing that was not missing when the 1999 decisions and appeals regulations were operated in practice. It is like the elephant in the room; we do not discuss it, but it is there. Has the Minister spotted it? Have his officials spotted it? Has the Secretary of State spotted what I am talking about? The enormous difference between

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the operation of previous appeals regulations and the ones before us is this. For those few with enough money to pay to appeal or challenge decisions, the position has not changed very much, if at all. They will be able to pay for legal advice and that advice will tell them whether they have a case or not. However, after 1 April, for those who do not have the means to pay—the vast majority, I would suggest, including many disabled people—where will they get the legal advice they need? They can get it now, but they will not be able to get it after 1 April. How will they receive advice on whether to start or not to start an appeal process? Who will advise them on the intricacies of the social security system?

I am sure that it has not escaped the Minister, his fellow Ministers in the department or indeed the department itself, that legal aid for welfare benefit advice will be abolished. However difficult the case, however much it may rely on points of law, there will be no legal aid either before or at a First-tier Tribunal, let alone an application to the Secretary of State for reconsideration. I would ask this question of the Minister: does he think that that is fair or that it represents a just system of reconsideration and appeals? I hope that he will not suggest in his reply that somehow welfare benefit law is so easy and unlegal that legal advice is never justified. He knows better than that, as does the House. Nor, I hope, will he use the argument that it will save some precious public money. Everyone agrees that abolishing social welfare law will cost the state, and particularly his department, much more money when early advice is not available. People’s legal problems, whether they are to do with welfare benefits, debts or employment, will get worse until one day, of course, the state will have to pick up the pieces from the broken lives that follow. It will be his department, not the Ministry of Justice, which has to pick up the pieces.

The Minister has a reputation for being considerate and caring, so I shall ask him the following questions which I will be grateful for a response to, however late it is. First, how can there be an acceptable decisions and appeals system when a large number of those affected will not be able to receive legal advice? Secondly, does it not follow that many hopeless appeals will be begun because no sensible advice will have been given; or alternatively, that proper, winning appeals will never be commenced? Thirdly—I hope that the Minister agrees with this—does it not make a farce of our reputation as a country with equal access to justice as a major part of our legal system that no such equal access to justice is available to millions of our fellow citizens who are in receipt of social security in one form or another?

I used to think it was just ignorance that had led Her Majesty’s Government to abolish legal aid in welfare benefit cases. Now I am forced to the view, as I think are many fair-minded people from outside, that it is too much of a coincidence that these legal aid cuts come at exactly the same time as radical welfare reform. These things are connected—it must be a deliberate government policy to bring in radical and damaging welfare reforms at the same time as making it impossible for the vast majority to appeal against the decisions

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that affect their daily lives. I feel strongly about this, that it is a disgrace and a scandal and that it is something that has not been talked about enough. Not only is there the blow for people of losing benefits—if that is what happens to them—or of having their benefit reassessed so they do not know whether it is right or not; they have the added blow of not being able to go and get simple, quality and cheap legal advice to advise them whether they should ask for a reconsideration or for an appeal, which is not something they are qualified to do themselves. I very much hope that the House agrees with me and I look forward to the Minister’s reply.

Baroness Lister of Burtersett: My Lords, I want to focus on monthly assessment and the treatment of changes of circumstances under the whole-month approach adopted for universal credit. First, however, I will take a step backwards to our earlier debates during the passage of the Bill, when some of us raised our grave concerns about the implications of the move to monthly payments. These concerns remain. Indeed, they have been heightened as a consequence of research published subsequently. Given the late hour, I will spare noble Lords the details, but every piece of research reinforces our argument that we are not simply talking about a small, exceptional group of people with budgeting difficulties, which appears to be the premise underlying the guidance on personal budgeting that we have been sent.

This is a systemic issue, born of the difficulty of budgeting on a low income. I still do not believe that it is a problem that can be solved with an elaborate panoply of exceptions to protect so-called vulnerable groups. That has in effect been recognised by the Northern Ireland Assembly ad hoc committee which recently recommended that claimants should have the right to opt for bimonthly payments in order to minimise the potential adverse impact on women and children. We will return to this issue when we debate the claims and payments regulations—I am sure the Minister cannot wait—but given that guidance has been circulated, I would like to ask the Minister two questions now.

First, what are the department’s working assumptions about the number and proportion of recipients who will require personal budgeting support, both generally and specifically with regard to monthly payments? Secondly, what resources will be made available to the external organisations which will be expected to deliver money advice, according to the guidance, and what discussions has the department had with those organisations about their capacity to provide such advice at a time when the advice sector is under considerable strain?

Turning back to monthly assessment and the whole-month approach to treatment of changes of circumstances, I start with a mea culpa. When we debated monthly payments, I argued that we could separate the question from that of monthly assessment. However, I think I was wrong. As the Women’s Budget Group—I declare an interest as a member—observed in its evidence to the Work and Pensions Committee, the implications of monthly assessment were only,

“fully realised on publication of the Explanatory Memorandum for the Social Security Advisory Committee about the draft regulations”.

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I pay tribute to the tenacity of Fran Bennett of the Women’s Budget Group in pursuing this issue. I have decided that I am a bear of little brain when it comes to understanding it—I hope that recipients manage better than I do—and therefore I will be drawing heavily on what she has written on the subject.

What now strikes me, reading what has been said about this by the department, is the extent to which monthly payment, motivated by the desire to change behaviour to monthly budgeting, is the driver behind monthly assessment. In other words, the two issues are in fact closely entwined. In the same way that I argued during the Bill’s passage that monthly payments risked undermining universal credit as a consequence of the Government taking what the Social Market Foundation calls a “sink or swim” approach, so I fear now its underpinning by monthly assessment could do the same, not least because it has limited the options for dealing with changes of circumstances and with more frequent payments.

It seems that the key to understanding the whole-month approach to a change of circumstances is that a whole month’s entitlement will depend on a recipient’s situation on one particular day just because it happens to fall at the end of the assessment period. If a baby is born at the end of the month, the extra benefit will be paid for the whole month, which of course is to the recipient’s advantage. But if a teenage child turns 18 and leaves home towards the end of the month, the universal credit recipient will lose a whole month’s credit for that young person even though she had been feeding her throughout the month. This strikes me as somewhat arbitrary, as I suspect it will to recipients as well.

I acknowledge that this is how the main out-of-work legacy benefits—ESA, JSA and IS—operate already but they do so on a weekly rather than monthly basis, which is totally different. Moreover, these legacy benefits typically represented only part of a recipient’s income as they would also be receiving, for example, housing benefit and child tax credit, whereas with universal credit nearly all their benefit eggs are in one basket, with the exception of council tax support and, thankfully, child benefit.

This approach to changes of circumstances also seems to be out of tune with all the talk about universal credit being more responsive to a recipient’s immediate circumstances. In fact, it is going to be less responsive than income support because instead of following changes of circumstances week by week, it does so only month by month. The Explanatory Memorandum states:

“This whole month approach means that Universal Credit payments will reflect the claimant’s circumstances at the point of payment, and so leave them better able to manage from pay day to pay day”.

But it also means that claimants may not reflect the circumstances that pertained at the time the payment relates to. I would be grateful if the Minister could explain to this bear of little brain how exactly it will leave claimants better able to manage from monthly payday to monthly payday.

SSAC has drawn attention to the particular implications for women who have fled violence. In its response to the draft regulations it observes that:

“Given the unpredictable nature of each potential crisis, the Universal Credit rules about changes of circumstances taking

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effect from the start of the monthly assessment period do not fit well. The draft regulations mean that an existing claimant arriving and leaving a refuge within their monthly assessment period would be entitled only to their regular monthly payment of benefit. The person or organisation providing the accommodation would receive nothing. Respondents were concerned that the network of support currently made available to those fleeing violence would be weakened. The Committee recommends that the Government gives further consideration to the issues that have been raised”.

Of course, since the SSAC report, the Government have announced that supported housing costs would be administered separately from universal credit and would be disregarded in the calculation of the benefit cap. Although we very much welcomed this concession when it was announced, I have subsequently learned that domestic violence organisations are concerned that the definition of supported housing in the regulations will leave many survivors of domestic violence within universal credit and so subject to the rigidities of monthly assessment.

SSAC also recommended that Government engage with stakeholders on the issue of monthly assessment. Can the Minister explain what engagement has taken place, and will he undertake to think again about how supported housing is defined in order to ensure that all refuges are covered? The Government’s recent response to the Work and Pensions Select Committee report on universal credit stated that there would be a process of consultation with stakeholders later this year on the long-term future of supported housing costs, which will affect refuge services. Can the Minister say if this consultation will include how supported housing is defined in order to ensure that all refuges are covered?

As the Women’s Budget Group pointed out in its evidence to the Work and Pensions Select Committee, the whole-month approach to changes in circumstances may reduce administrative complexity for the department and—the Government no doubt hope—the adverse publicity associated with the underpayment and overpayment of tax credits in the past. But in reality underpayments and overpayments in relation to actual circumstances will still exist. They will simply be hidden by the whole-month approach and the impact will be borne by the recipient—for good or ill.

Clearly the department now thinks monthly and thus in its eyes changes of circumstances during a month simply do not exist, but I am not convinced that that is how recipients will think. I think they will be confused and uncertain as to how what they do affects their universal credit entitlement, and will have greater trouble in budgeting. It seems that the Government want to change not only behaviour but how people think about their everyday lives—and that is not so easy.

I would welcome the Minister’s observations on this and seek an assurance that the impact of monthly assessment and the whole-month approach to changes of circumstances will be closely monitored. I received an assurance from his department yesterday that the general evaluation framework covers intra-household issues as well as household-level issues, which is very welcome. I would be grateful if he could confirm that this will include evaluation of the impact of monthly assessment and monthly payment, because I am particularly concerned about the possible impact on mothers as the main day-to-day budgeters who will carry much of the hidden burden of these changes.

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9.45 pm

Lord McKenzie of Luton: My Lords, I again thank the Minister for introducing the regulations. I wish him well in dealing with those incisive inquiries from my noble friend Lady Lister about the monthly assessment, the monthly payment and supported housing. She gave us a very powerful analysis.

We acknowledge that an updated framework for decisions and appeals that encompasses universal credit, PIP, JSA and ESA is needed. As the Minister will doubtless anticipate, there are two key matters that we will pursue, mirroring those discussed in the other place: mandatory reconsideration and the payment of benefits in the interim. Noble Lords will recall the debates that we had in Committee and on Report on the Welfare Reform Bill on what has ended up as Section 102 of the Act, and a degree of scepticism about why it was necessary to have two powers when a power was already available to decision-makers to revise a decision prior to the determination of appeal. However, we are where are, with two time limits within the system. If a claimant disagrees with a decision, they have one month to ask for a reconsideration. When the result of that is known, they will have one month from the date of the new decision to appeal.

As the Minister has identified, there is no statutory time within which decision-makers are obligated to complete a reconsideration. This is important because it reflects on how long a claimant’s interim benefit position will endure. We therefore register our concerns about the strictness of the time limits imposed on claimants in the current climate.

My noble friend Lord Bach gave a tour de force speech about the current situation, in which legal aid is being denied and advice agencies are being stretched and hit with redundancies and closures. We received last Friday the Universal Credit Local Support Services Framework, with not enough time to peruse it in any detail for today. Perhaps the Minister will tell us whether its envisaged remit will include advice on a decision or a reconsideration. Will the local support services be available to advise and assist on that? Of course, this pressure on advice surgeries is compounded by the raft of changes that we have discussed today and will doubtless continue to discuss, and which are about to enter the system shortly. Can the Minister say something about any discretion that might be available in respect of the time limits imposed by the provision?

It is understood that benefit entitlement pending a reconsideration will be on hold. I think that is what the Minister said: that if someone is seeking a benefit for the first time, they will be left without benefit if and until the claim is settled positively. For those claiming ESA and going through a reconsideration process, this would appear to herald the change. Is it not the case that an ESA claimant will currently be paid at the assessment rate equivalent to the JSA rate pending a reconsideration and appeal? Will the Minister confirm that this will not be the case in the future? The remedy in the short term, as has been suggested, appears to be a claim for JSA in due course where contributory ESA is involved, presumably a claim for universal credit. This appears to be what the Minister still advises. How does that deal with the point that

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this may require an individual to sign up to a claimant commitment and undertake work for which they are not suited?

Can the Minister please confirm the position for someone in receipt of ESA who, on a reassessment under the WCA, is assessed as being fit for work or subject to all work-related requirements? If someone who is currently on ESA and at risk of being downgraded to universal credit or JSA is subjected to the reconsideration appeal process, what benefit is paid before that appeal is concluded?

These questions touch on the timeliness of the reconsideration process. It is accepted that if a reconsideration and appeal process is successful, any due award will be backdated to the original claim, but that does not help the claimant in the interim. My honourable friend Anne McGuire MP made the point in another place that where high levels of appeals are successful, such as on ESA and DLA, a protracted reconsideration and appeals process will disadvantage claimants, driving them into debt and into the arms of the food banks.

We note that the Government have declined to place time limits on the reconsideration process—the Minister confirmed that tonight—but it seems from their response to the public consultation on mandatory consideration that they will consider making proposals for an interim performance indicator. Perhaps, therefore, I can take the opportunity to repeat some questions posed by my honourable friend Anne McGuire that remain unanswered. What do the Government envisage as the standard length of time for a revision prior to appeal? Will customers be told how long they should expect to wait? What action can be taken if projected timescales are exceeded, and will the department monitor and publish statistics on waiting times for appeal?

My honourable friend also took us back to earlier deliberations in Grand Committee, when the noble Lord, Lord De Mauley, was at the Dispatch Box. In response to an inquiry, he said:

“Alongside implementation of this power, we intend to make further improvements to the reconsideration process, which will include suitable arrangements for monitoring and, where appropriate, improving the speed of the process”.—[Official Report, 23 November 2011; col. GC 456.]

Perhaps we can be told what progress has been made on that.

Finally, I ask a question about the routine publication of appeals data—again going back to our debates on the Welfare Reform Act. At one stage, I think it was envisaged that there would be a cessation of the routine publication of those data. Perhaps the Minister can confirm that that is not the case.

We do not oppose the regulations, but we need to monitor them closely to see that their implementation does not create unfairness.

Lord Freud: Again, I thank noble Lords for some very good contributions. This is not the easiest or most digestible set of regulations. They very much replicate the existing decisions and appeals provisions but, just as the welfare reform agenda has provided an opportunity to reduce the complex range of income-related benefits, with the introduction of UC, it has also provided an opportunity to rationalise the rules

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governing the administration of these new benefits. This consolidated set of regulations does that by ensuring that the rules underpinning decisions and appeal rights are clearer and more accessible, benefiting both claimants and, indeed, the department.

On the detail of mandatory reconsideration, I reassure the noble Lord, Lord McKenzie, in particular, that we will closely monitor the impact on claimants, the quality of decision-making and appeal rates during the early stages of implementation. It is a key change that will improve claimants’ experience of the appeals process if we get it right. We will also monitor appeal volumes more broadly, particularly with the introduction of the new benefits, UC and PIP. We will review and amend the advice for decision-makers guidance as necessary, and if we find that the regulations are at fault there is an option to amend them.

On the point raised by the noble Lord, Lord McKenzie, regarding the time limit, the key issue is that we will be able to handle some cases with extreme speed while others may take more time, particularly where we need to ask for more evidence. I will commit to keeping noble Lords updated on that matter. On reconsiderations, we envisage that the first point of call will be to our staff, but some people may choose to go to an independent advice centre, although we had not been envisaging this as part of the role of the local support service.

Baroness Hollis of Heigham: If the Minister will allow me, could he reconsider that last point? I had wondered whether to intervene following my noble friend’s contribution on legal advice. It would be extremely valuable if the local support services, which are there helping people to move from paper forms to online forms for a brand-new benefit structure, et cetera, were able to give claimants the sort of legal or welfare advice steer that they would have got elsewhere in the past. For example, I remember vividly cases in which parents were trying to claim DLA for children under the age of two, which is of course simply not possible. That sort of advice and guidance could very well be served by the local support services and would pay dividends in cash, as well as in buy-in to the whole UC procedure, if the Minister could ensure it.

Lord Freud: My Lords, the best I can do is to have a think about it. The issue is the balance of what we are trying to get the local support service, which is a partnership approach, to do. I want to get the balance of that right, and I will take that away and think about it. Clearly, at some basic level there will be that kind of support; it is the extent to which it becomes a more formalised process. However, as I said, I will have a think about that point.

The point about ESA is that there is a long-standing provision for it to continue during an appeal. That will continue, so there is no change there. The only difference from the current arrangements is in this rather short period of reconsideration, during which ESA will not be payable. Once the appeal starts, ESA will go into payment, as it does currently. I hope that I have just nailed that point and that the noble Lord, Lord McKenzie, is not looking puzzled deliberately but understands it.

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Lord McKenzie of Luton: I think I understood what the Minister said, but if during the process somebody has applied for or been in receipt of ESA and there is a challenge, it will have to go through a mandatory reconsideration process first and then out on to an appeal. Once you get to the appeal, you will get ESA at the assessment rate—I would guess until it is settled; is that right?—which is equivalent to JSA. Is that not a change from the current position, under which you in effect go straight to an appeal, however long or short that reconsideration period is?

Lord Freud: Under the current position, there is a voluntary process whereby people can go for reconsideration and the ESA is not payable until the decision is taken to go formally to an appeal. The difference is that we are moving from a voluntary process that some people do to a mandatory process that all people will have to do, and there is a gap. That is where concern has been expressed, and my response to that concern is that we need to keep it under control and look at how long that timing really is. I take that specific point, but on a more general point my understanding is that there was a bit of concern from the noble Lord that there was actually a change in payment from appeal. As I say, that is not happening.

10 pm

The noble Baroness, Lady Lister, asked about late reporting. I am always frightened when she claims to be a bear of very little brain because obviously something terrible is going to come at me. Her example was this: you have a baby in the middle of the month, or towards the end of the month—babies come at any time, as the noble Baroness, Lady Hollis, says—and then get paid the extra amount from the beginning of the next month when you have the requirements, looking ahead. Likewise, if the teenager leaves the household, you will have had money for the whole of that period for the teenager at the beginning of the month, but for the next month when the teenager is not there you will not have it.

I hope that the noble Baroness does not come back with something utterly devastating, but I cannot understand why this is a problem for a household. When the household gets the money that is to be spent over the next month, it reflects the position that the household is in when that money is received. That is the objective of whole-month reporting, and it is designed utterly benignly. I can testify to that because I spent a long time going through the rights and wrongs of the way to do it. It is designed to ensure that, as the month starts, the payment reflects the requirements of that household.

Baroness Hollis of Heigham: But the payment is in arrears for the previous month.

Lord Freud: Yes, the payment reflects what happened in the previous month, but it gives you what you need for the month that you are going to be spending that money in. I will take this debate outside over a cup of—sorry, over a glass of something; I think vodka is appropriate. I will argue this right the way through,

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because I think it is the most benign way to ensure that people have the appropriate amount of money for each month.

On the point about the advice sector, we are looking at working closely with the advice sector to look at how the existing infrastructure can be used to support claimants with complex needs, and we are looking at new services that we need to develop to ensure that claimants have access to the right support. I have already talked about the multimillion pound support package from the Cabinet Office and the Big Lottery Fund.

I hope that I can offer some reassurance to the noble Baroness, Lady Lister, on the question of supported exempt accommodation. I pulled this area out from the universal credit because I could see that people often came through these accommodations quite rapidly, and it just was not the appropriate way of doing this. We have left that for the time being but with a view to ensuring that there is a sustainable financial regime for this kind of accommodation.

I have to confess to the noble Baroness that I have heard concerns only recently that some of the kinds of accommodation that we would want to support are not within our definition of support-exempt accommodation. I will look at that when we look at the whole thing, and we will consult on it. It is an important issue that we have right up front.

I do not have numbers on payment exceptions. We do not want to set targets for this, but a useful figure to bear in mind in the private-rented sector is that currently about 25% of private-rental claimants have their landlord paid direct. We are trying to get as many people as possible to pay their own landlords.

Baroness Lister of Burtersett: I would not expect a target, but there must a working assumption. I am not thinking necessarily about direct payments but about those who are going to find it difficult to deal with monthly payments, which is one of my main concerns. Perhaps the Minister can write to me, because the Government must have some view about whether this is a very small group, a larger group or whatever.

Lord Freud: We are not defining this by saying that they are vulnerable people; we are asking how many touch points of support people have. The four groups that have a large number of touch points are people who are homeless or who have mental health problems, addiction problems or learning difficulties. They are the groups about whom I have particular concern about making sure there is support for them. The noble Baroness will have her own figures on how big those groups are. We are working to get them refined. I will be able to provide more information on this as we work our way through. We are doing an enormous amount of work in this area, as noble Lords can see from the piloting we are doing and from how we have built up this network with the local support services. This is an area of great activity.

The noble Lord, Lord Bach, made an impassioned speech. Clearly, legal aid will still be available for appeals to the upper tier on a point of law. In our view,

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the first tier does not require legal representation because it is not adversarial. We are hoping that one of the things that mandatory reconsideration will do is mean that many applicants do not need to proceed to appeal. We are actively working on getting the right advice services locally.

These reforms are necessary and will not lose sight of the overarching policy drivers, but clearly we will go on listening and learning. I hope that noble Lords leave this debate thinking that the department’s decision-making and appeals structure is robust, fit for purpose and ready for the introduction of UC and PIP.

Motion agreed.

Social Security (Payments on Account of Benefit) Regulations 2013

Motion to Approve

10.09 pm

Moved by Lord Freud

That the draft regulations laid before the House on 10 December 2012 be approved.

Relevant documents: 15th Report from the Joint Committee on Statutory Instruments, 24th Report from the Secondary Legislation Scrutiny Committee.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights.

These regulations support the powers introduced by Section 101(1) of the Welfare Reform Act 2012 to make payments on account of benefit. Two new types of payment on account are introduced by these regulations. First, short-term advances of benefit for universal credit and legacy benefit claimants will replace interim payments and social fund crisis loan alignment payments from 1 April 2013 for legacy benefits and 29 April for universal credit. Secondly, budgeting advances will replace Social Fund budgeting loans for eligible universal credit claimants from 29 April 2013. Short-term advances will provide an advance of benefit against a new claim or a change of circumstances which significantly increases the amount of the benefit award. Budgeting advances will help finance intermittent or unforeseen expenses, such as essential household items or expenses related to maternity or obtaining or retaining employment. These are advances of a claimant’s benefit. They are not additional money provided through a budget-capped scheme as is the case with the existing Social Fund.

I turn to some of the reasons for these changes. The existing Social Fund has been part of the benefit system since 1988. The fund was designed to help people meet exceptional costs that were difficult to budget for out of mainstream benefits. However, it has not kept pace with wider welfare reform which has led to complex administration. Parts of the scheme are poorly targeted and open to misuse. In future, claimants will have access to financial support through advances of benefit and local provision.

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Social Fund reform, of which the introduction of short-term and budgeting advances are a key part, was partly in response to various comments and criticisms of the current Social Fund, including from the National Audit Office, the Public Accounts Committee, the Commons Work and Pensions Select Committee, the Social Fund commissioner, and customer representative and other stakeholder groups. As noble Lords know, crisis loans and community care grants are being abolished from April 2013 as part of the reform of the Social Fund. I know that there has been some interest in the progress being made by local authorities and the devolved Administrations in putting their new arrangements in place.

We know from the detailed work being carried out at a local level by Jobcentre Plus that English local authorities are at various stages of readiness. At this point in time we are not aware of any that will not be providing some form of local welfare provision from 1 April. The Scottish and Welsh Governments are both delivering their own national models from 1 April.

Returning to advances of benefit, our core aim remains to provide essential support targeted at people on the lowest incomes, whether in low-paid work or out of work, to manage the demands on their budgets that cannot be addressed through their regular benefit payments. Financial capability plays an important role in helping people to enter the world of work and in enabling self-sufficiency in budgeting and financial management. The Government want people to be able to manage their affairs in a manner that best reflects the demands of modern life, whether in or out of work.

Universal credit will provide a range of financial support to help people achieve financial independence and rely less on government to manage their money. Improving financial responsibility will allow households increased access to affordable credit, will reduce reliance on borrowing from government and will encourage households to take advantage of cheaper tariffs for essential costs such as utility bills.

We recognise that some claimants will need support at the start of their claim when they are waiting for their first payment of benefit, or during their claim when they have a one-off expense for which they have been unable to budget. The new system of advances of benefit will be much simpler to understand and to administer. We will ensure that those in financial need have access to support when they need it.

I want to draw a couple of aspects of the regulations to the attention of the House. For short-term advances, claimants have to be in financial need in order to receive an advance. Regulation 7 defines this as a serious risk of damage to the health or safety of the claimant or a member of their family. This is a high bar to pass but rightly so considering that these advances are paid using public funds. However, it is not a new test within the benefits system. This has been the test in Social Fund crisis loans for the past 25 years or so, so it is one that our staff are used to operating.

Claimants cannot receive a second budgeting advance if they have an existing one which has not yet been fully recovered. This means that they can have only

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one budgeting advance at a time. This is set out in Regulation 14. I know that this is one element of the new arrangements that has caused some concern.

10.15 pm

The new scheme has been designed to provide an improved and simplified system. The existing budgeting loans scheme works by allowing claimants multiple loans up to the maximum debt limit. These loans can be recovered only one at a time in strict date order, oldest first, and can result in the claimant remaining in debt and on reduced benefit for several years. As I have just said, budgeting advances are limited to one at a time, with one repaid before another can be considered. This new approach is intended to encourage improved budgeting and personal financial responsibility and should help claimants make the transition to work by preparing out-of-work households for the realities of budgeting on a monthly income. Budgeting advice and other support will also be available to claimants.

On universal credit, the Government understand that the move to single monthly household payment is a significant change from the way many benefits are currently paid and that some claimants will require support to help them manage that change. The support available will be a mix of general and targeted budgeting advice, alongside universal credit benefit transfer advances, which are not part of these regulations, and financial products that will be made available dependent on the claimant’s circumstances. In exceptional situations, alternative payment arrangements will be made for those households unable to manage receipt of single monthly payments of benefit.

Extensive stakeholder engagement has taken place on the provisions contained in these regulations. We have held workshops with customer representative organisations and devolved Administrations to outline detail within the draft regulations and to provide the opportunity for them to seek clarification and to comment on proposals. We have responded to the comments made, including, for example, increasing the maximum earnings thresholds for eligibility to a budgeting advance following observations from welfare organisations that the proposed thresholds were insufficient to ensure broad parity between the arrangements for the legacy benefit system and for universal credit.

During discussions with the Social Security Advisory Committee, an issue was raised regarding the way in which the earnings of self-employed people were treated when it came to accessing budgeting advances. Therefore, we plan to lay a minor amendment to the regulations in due course to ensure that assumed income from the minimum income floor is not included in the earnings calculation for accessing a budgeting advance. I am grateful for the work of the Secondary Legislation Scrutiny Committee. Although it drew this instrument to the special attention of the House, it did not appear to have any particular concerns. I seek the approval of noble Lords for these regulations and I commend them to the House.

Baroness Lister of Burtersett: My Lords, I have a few points to make. The Minister will be glad that I am not going to go over all the previous arguments about the demise of the Social Fund and I will not

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cover everything that I had planned to cover. However, I want to ask about budget advances. I think that the Minister may have referred to my first point. In the answers to questions raised at the seminar, which I was unable to attend, it was stated that,

“the test of ‘serious risk’ for budgeting advances has been carried forward from the existing system and is deliberately set at a high bar, but it is one staff are familiar with”.

However, I am advised by CPAG that in the existing system the “serious risk” test is applied to crisis loans and not budgeting loans, which budgeting advances replace. So, yes, staff are familiar with it but in another part of the system. By introducing the test for budgeting advances, the bar is being set higher for this part of the system, and yet another part of social security is being made available only in situations of dire need. Surely, the point of budgeting loans is in part to help prevent ever getting to a situation where there may be a serious risk of damage to health or safety. Will the Minister explain why this particular change has been made? To be honest, I think that he slightly conflated crisis and budgeting loans in his introductory explanation. Will he also confirm that, as with regard to crisis loans, health will include mental as well as physical health, and that safety relates to potential as well as actual danger? Does he agree that the lack of adequate cooking, heating or sleeping facilities could constitute a risk to health? I would feel happier about this shift if the Minister could give that assurance.

Regulation 15 prescribes the maximum amounts of budgeting advances as £348 for single people, £464 for couples and £812 for households with children, single or couples and irrespective of the number of children. These amounts are much lower than the current maximum amount under the Social Fund budgeting loans scheme, which is £1,500. I should be grateful if the Minister could explain the justification for this reduction. In particular, is there any evidential basis to suggest that the maximum amounts can be so substantially reduced, compared to that used for the Social Fund scheme of budgeting loans, without it causing problems for some claimants?

Having elicited some management information through Parliamentary Questions, I accept that these amounts are higher than the average budgeting loan award made to each of these family groups in 2011-12 and that fewer than 100 people are recorded as receiving awards higher than those specified. However, that suggests that such a big reduction in the maximum amount is unnecessary from a public spending point of view while a small number of claimants could suffer as a consequence. Is the Minister able to give any information as to the kinds of circumstances in which claimants have received higher awards than those specified and what kinds of sums are involved? Given that these maximum amounts are set out in the regulations, can he explain the procedures for keeping them under review and for uprating them? This question becomes more important now with the significant reduction in the maximum amounts.

I thank the Minister for explaining why a person has to pay back all a previous advance before getting the next one, but I am still worried that, at a time when benefit levels are being cut in real terms and people

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will have problems with monthly budgeting, these new rules will be unduly restrictive and cause real hardship. Lone parents and disabled people currently receive two-thirds of the gross expenditure on budgeting loans and they will therefore be the groups hardest hit.

Baroness Sherlock: My Lords, I thank the Minister for introducing these regulations and explaining how they would work; and my noble friend Lady Lister for her characteristically incisive questions. For this one moment only, I am glad that I am standing here and not sitting in the Minister’s seat. As has been explained, these regulations come in two parts. I will first look briefly at the payments on account. The Minister has explained the circumstances in which these will operate and my noble friend Lady Lister has already tried to tease out the reason why the Government have gone for this strict test of being available only to those in financial need. It is even slightly stricter than that. They will be available only for those in financial need as a result of having applied for a benefit, but not yet received a payment, when it seems likely that they will do; or when an award of benefit has been made, but the date on which it would be paid has not yet been reached.

That last one is likely to be of particular interest to millions of people who will find themselves being moved from weekly or fortnightly to monthly payments. Recent research commissioned by DWP, Work and the Welfare System: a survey of benefits and tax credits recipients, by Tu and Ginnis in 2012, found that 42% of potential universal credit claimants said they would find it harder to budget with monthly payments; 80% of these said that they were likely to run out of money before the end of the month. As I understand it, they will not all be entitled to budgeting advances, only those who find themselves in this stiff test of financial need, as a result of the circumstances I have described.

I would be grateful if the Minister would explain what he understands as being a “serious risk”. Would running out of food or cooking facilities constitute that, as my noble friend Lady Lister mentioned? Food banks already see significant numbers of people turning up because their benefit payments have been delayed. I suggest that this is likely to become much more significant in future with the move to monthly payments. Even if the test is the same as now, will the Minister concede that there may be a different set of needs resulting from a change in the circumstances because all these people are moving into monthly payments? Has he considered that aspect of it?

Regulations 11 to 15 cover budgeting advances. My noble friend Lady Lister has gone through the reduction in the maximum amount available, so I do not need to revisit that but I will be interested to hear the Minister’s answer. I would be interested, though, in the following information, if the Minister can provide it. His department has inquired about what has been happening with regard to the replacement for the Social Fund in different parts of the country. How many of those schemes will offer cash to claimants? What has his department found out about that? That will be important since they will replace a system whereby claimants can access cash at the moment. What research has the department done

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to establish the alternatives to which claimants are likely to turn? Since many claimants will not be able to access mainstream credit, it must be feared that they will turn at best to expensive legal credit, home credit or retailer financing, or at worst to illegal loan sharks.

I would be grateful if the Minister could explain again why he thinks it is important that claimants should be able to have only one loan at a time, even when it is a very small loan. A family may have borrowed £150 to buy a bed for a child but then a disaster strikes: for example, their washing machine breaks down, there is a flood or the bicycle which the mum is going to use to get to a job interview is stolen. They then need a significantly larger loan. What is the rationale for their not being allowed to take out more than one loan even if the total of the loans is well below the ceiling?

Will the Minister address the interaction between the new low ceiling, the fact that the adviser will be required to establish that the claimant can afford to repay the loan and the fact that the maximum period over which it can be borrowed has been reduced from two years to one year? Therefore, somebody taking out the maximum loan will have to contend with a tighter borrowing period and will have to prove that he or she can afford to repay it. Is there not a danger that that will make it even harder to get the loan in the first place?

These regulations may seem minor and technical but we will see millions of people face changes in their payment patterns because the decisions the Government have taken—in the face of widespread dismay and advice to the contrary—to move to a single payment, including amounts for rent, children as well as work, and to pay it monthly in arrears, are likely to be the cause of significant difficulty for a great many claimants. The least they deserve is a generous, open, accessible system of payments on account to ease the regulations’ passage.

Lord Freud: My Lords, again, lots of punchy points have been made. I think that the noble Baroness, Lady Lister, is under a misunderstanding—this rarely happens—as regards the serious risk test. This is applied only to short-term advances. It does not apply to the budgeting advances. I reassure her that not having access to heating would clearly be considered a risk to health. The budgeting advances are exactly the same as for the current budgeting loans in terms of the maximum. The current budgeting loan is lower than the available maximums because that counts for the whole of the Social Fund debt—the £1,500 figure—which includes budgeting loans and crisis loans. Because the Social Fund will no longer exist and we are sending elements of it to the regions and the devolved areas, we are not comparing like with like. The actual maximums as regards the like-for-like components have not changed.

As regards mental health issues, the test is whether the claimant or a member of their family would face a serious risk to health or safety. Clearly, savings are a factor, as are other sources of income, but health, including mental health issues, will be considered.

The context here is to widen the source of funding for families, which is why we are looking to deliver a further £38 million investment into the credit union

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movement, thereby aiming to make sure that it becomes a viable industry that is able to support families. I am looking forward to making more announcements about that in the not-to-distant future.

10.30 pm

Just again to reassure the noble Baroness, Lady Sherlock, on the move from fortnightly to monthly payments, as people move under that change, they will get the opportunity to have benefit-transfer advances, if they choose to, which will help them through that first month. We are clearly determined to put loan sharks out of business, and we have put a lot of money into the money-lending teams, which have already spent £24 million, and another £5 million or so in the past year, and have helped 19,000 victims of loan sharks.

We are looking to offer budgeting support to anyone who is claiming universal credit or transferring from another benefit, and we will have a variety of ways of providing that, including self-serve from the online budgeting support that is already available.

I have dealt with the point raised by the noble Baroness, Lady Lister, about the single budgeting advance versus multiple loans, but let me do so again. The system is designed to prevent claimants taking out multiple loans and remaining in debt for many years. It is designed to reduce the risk of the claimant getting into long-term debt and will encourage improved budgeting and personal financial responsibility. Where there is a second crisis, we will look at referral to the local authority provision as a way of dealing with that.

Baroness Hollis of Heigham: I am now completely baffled by the approach that the department is taking. On the one hand, the money-lending teams, which are obviously doing well, are seeking to exterminate illegal loan sharks and so on, but they exist because there is a demand for cheap credit, otherwise they would not be in business at all. We obviously respect what the Minister is trying to do with credit unions, which are an appropriate alternative—if, of course, you have first saved—but given that he has now agreed that the maximum figure for single people is £348, £464 for couples and £812 for families with children, why not use those figures as the maximum cap that people can borrow against for their payments on account, rather than be confined to one loan? Thereby, if you have taken out £70 or £120, you cannot take any more until you have paid that back. If you are going to have those caps, regard them as the caps against which money can be borrowed on several occasions and you will therefore teach people how to manage credit as well as income. I suggest that that would be much more appropriate, given the Minister’s other objectives, which we entirely share.

Lord Freud: This is a fascinating area because, following the growth of the micro-loan industry particularly in Bangladesh, where it started—it has spread all around the world—the lessons on helping people to learn how to budget are very much along the lines of giving someone a loan which they pay back before they get the next loan. There is therefore a real learning process. In our approach, we are picking up

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this global phenomenon, whereby we will provide credit—in practice, free credit behind which there is a discipline—which has to be repaid before the next loan is available. It is very much the same thinking as that which we see globally.

Baroness Lister of Burtersett: If people know they can get only that amount, they will borrow more than they need at that point, knowing that that is it, whereas, as both of my noble friends are suggesting, you could have £100 here and £100 there, as you need it. I suggest that it would be good to look at this again.

Baroness Hollis of Heigham: I would artificially inflate my bid, knowing what you are doing to me. That would be a very foolish way to encourage me to learn how to manage credit.

Lord Freud: I can see that I am in the presence of experts—in an observatory context—on how people manipulate any system at all. I shall take away your thoughts, as always, about the fact that some gamesmanship may be going on.

It is getting very late so I shall wrap up. When you look at local authority provision, there are clearly opportunities. It is for each local authority to consider its own local circumstances. We are in the process of getting information about the details of those schemes, which will perhaps provide goods or services and some will provide cash. Then we shall be able to report back at the appropriate time when we have some more information.

I hope I have dealt with the questions. Clearly there will be teething problems, as there is with anything new, but we will monitor this very closely as part of our evaluation programme, and that will cover the introduction of universal credit. In addition, the intention is to review specifically universal credit advances and budgeting advances in 2017. Short-term advances for those on legacy benefits will also be monitored and evaluated. I commend the regulations to the House.

Motion agreed.

Social Security (Loss of Benefit) (Amendment) Regulations 2013

Motion to Approve

10.37 pm

Moved by Lord Freud

That the draft regulations laid before the House on 8 January be approved.

Relevant document: 15th Report from the Joint Committee on Statutory Instruments.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud): My Lords, I can confirm that, in my view, this statutory instrument is compatible with the European Convention on Human Rights.

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These regulations support the changes introduced by the Welfare Reform Act 2012 which allow for the toughening and strengthening of loss of benefit penalties for those who commit benefit fraud. These regulations also deal with how these penalties will apply in universal credit. The reason why we are bringing forward these regulations is straightforward. From the research that we have carried out, 41% of claimants think that benefit fraud is easy to get away with, while one-third think that the penalties are not that bad. We need to change the perception that it is okay to steal from the state. It is stealing from taxpayers; it is stealing from fellow citizens; and it is stealing from other benefit claimants.

We accept that the vast majority of people are honest in their dealings with the department. But for those who are not, we need to try to change their behaviour so that they think twice before doing it again. The consequences of their actions must therefore include losing their benefit for a period of time. The more serious or repeated fraudsters should face the harshest treatment. Such behaviour should not be tolerated when you consider that £1.2 billion is lost each year as a result of fraud against the benefit system. It is clear that we have a need to address this undesirable behaviour. This measure is therefore just one of the many we announced in the wider fraud and error strategy. Introducing these changes will help reinforce the message to fraudsters that their actions will not be tolerated and that it is never clever to defraud the benefits system. It will act as a forceful deterrent and encourage a positive change in future behaviour. The regulations before us—the details of which I will now explain—support that aim.

We debated earlier the details of the regulations which cover universal credit sanctions and hardship provisions. I will not dwell on those provisions because they are largely replicated in these regulations. I am sure that noble Lords will recognise that there is a similar need to provide for the appropriate reduction in payments of universal credit during a period of fraudulent loss of benefit. The regulations mean that universal credit claimants, subject to a loss of benefit for a fraud offence, will be paid a reduced rate of universal credit for the penalty period rather than having their universal credit completely withdrawn. This follows the current approach that modifies the effect of the loss-of-benefit penalties imposed on those who are receiving means-tested benefits.

We have set out how we will penalise and treat universal credit claimants who have acted fraudulently while ensuring protection for those claimants who are pregnant, not subject to work-related requirements, or who are responsible for a young child. Those offenders subject to the highest rate of reduction will have their payment reduced by an amount equivalent to the universal credit standard allowance. Where they are in a couple, the reduction will be equivalent to an amount of half of the standard allowance applicable for a couple. In all other cases, it will be reduced by an amount equivalent to 40% of the standard allowance, or 20% of a couple’s claim. This will help ensure that payments for housing costs, for example, are protected.

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The regulations also provide for hardship payments of universal credit to be made in appropriate cases. They prescribe the amounts of such payments and the requirements for information that must be fulfilled before they are paid. They also provide for the repayment of hardship payments in certain circumstances. This is in line with existing provisions for other benefits, which we discussed earlier. No one will escape facing a penalty, but safeguards are in place to take into account a person’s conditionality group when the penalty is imposed.

We have also made changes to the loss-of-benefit penalty to be applied to income-related employment and support allowance claimants. In future, such payments may be reduced by 100%. However, this tougher approach will not apply to all employment and support allowance claimants. For example, those who are pregnant, seriously ill, or who are not subject to work-related requirements will retain their payments, but at a reduced amount, depending on their circumstances. Hardship payments will also be available in appropriate cases. These provisions will ensure a similar and consistent approach for universal credit and employment and support allowance claimants in relation to the reductions and hardship arrangements of those benefits that are to be applied where there is either a loss-of-benefit penalty or a conditionality sanction.

The 2012 Act also introduced a provision for a new, immediate three-year loss-of-benefit penalty to apply where a person is convicted of a “relevant offence”—in general, an offence of serious, organised or identity benefit fraud. I think that noble Lords will agree that those who deliberately defraud the taxpayer of benefit payments should face the toughest loss-of-benefit penalties. If someone commits a “relevant offence”, this warrants the application of an immediate three-year loss of benefit.

One relevant offence is specified in the 2012 Act: the common-law offence of conspiracy. That captures the seriousness of the type of offence we intend to be subject to this penalty. However, other offences may be committed in connection with benefit fraud that do not involve serious, organised or identity fraud. We want only benefit offences involving serious, organised or identity fraud to be subject to the three-year loss-of-benefit penalty.

The 2012 Act allows for regulations to set out the other offences that may also be considered “relevant” and therefore justify an immediate three-year loss-of-benefit penalty. The way this will work is that the offences listed in the regulations will be considered “relevant” only when they meet other criteria set out in the 2012 Act. This is because the listed offences are used to prosecute a range of offending.

The three-year loss of benefit penalty will apply in relation to the offences listed in the regulations only where there has been an overpayment of £50,000 or more, where the person receives a prison sentence, including suspended sentences, of one year or more, or where the benefit fraud has occurred over a period of at least two years. These offences are often premeditated, such as where they involve the manufacture of false claims through the creation of false identity or identities, or by the engagement of two or more people to commit

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benefit fraud on a large scale. We make no apology for getting tough here. There are also some minor technical changes to the existing provisions to specify the appropriate start date of the loss of benefit disqualification period to fit periodicity payment arrangements for some benefits and to update references to certain legislation.

In conclusion, we need to penalise wrongdoing, continue to tackle fraud in the benefit system and seriously deter repeated or serious benefit fraud. These regulations were referred to the independent Social Security Advisory Committee on 7 November 2012, which cleared them without any formal referral. Local authorities have also been kept abreast of the changes. These changes create a necessary, stronger penalties regime. I therefore commend the regulations to the House.

10.45 pm

Lord McKenzie of Luton: My Lords, I thank the Minister for his introduction to these regulations. As has been stated, they are narrowly focused and address particularly the issues of fraud. We share with the Government a strong intolerance of those who, through fraud, deliberately set out to cheat the benefit system. However, the three-year sanction—loss of benefit for three years—driven by non-compliance with conditionality requirements is a serious matter and demands careful scrutiny.

It is understood that these regulations are focused just on situations regarding fraud. The wider issue of sanctions and hardship provisions will be the subject of continuing debate. When we challenged the higher-level sanctions applicable to universal credit, we were told that they should apply only to a handful of individuals. Perhaps the Minister can give us some indication of the likely numbers of individuals expected to be subject to the three-year loss of benefit penalty provided for in these regulations.

The debate on these regulations in the other place covered a number of issues, which I do not propose to range over again in detail this evening. We are better informed about the offence of uttering. We know that these provisions will apply also, as does the sanctions regime, to those in receipt of universal credit who are in work. As the Explanatory Note makes clear, these regulations deal with a new three-year loss of benefit on a first offence following a benefit fraud conviction. The conviction must relate to a serious case of organised or identity-related fraud. The Minister has set out the criteria for that loss of benefit to apply.

We understand why, for universal credit, the measure of any sanction will be related to the standard component and that amounts, for example, for children and housing will continue to be paid, together with any hardship payment. The concern is that when these situations arise, the whole household, including children, will suffer, not only the individual who has committed the fraud. Amounts allocated for children and housing, for example, could be used in whole or in part for daily living expenses, with the increased risk of rent arrears and homelessness. It seems to us that there is an argument that, where there are joint claimants, there should be a presumption that in these circumstances payment should automatically flow to the main carer.

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The Minister has touched on the availability of hardship payments and we have already spent some time on those this evening. I do not now propose to raise any further questions on them.

As we are probably at the end of our proceedings, I ought just to take the opportunity to thank the Minister for his display of stamina at the Dispatch Box today and for his determination to do whatever he can to answer the whole array of questions that have been directed at him, which he has done probably with minimal follow-up required in correspondence, so we thank him for that. There are obviously many issues around universal credit, which will run and run, and I am sure that we will revisit them on many occasions over the upcoming months and possibly years. But I think that we should conclude by thanking him for what he has done today.

Lord Freud: My Lords, I am particularly grateful that this has been quite a short debate. I appreciate the words of the noble Lord, Lord McKenzie. I do think that the debates we have on these matters are of an extraordinarily high quality. One of the reasons for that is that my department makes an effort to get information out to noble Lords so that these quite complicated matters can be understood and we do not waste a lot of time on points that are just misunderstood. However, I am deeply impressed by the number of people who have expended so much intellectual energy on gaining an understanding of what is in effect a rebuild of our social affairs. I appreciate that very much. As I say, I have taken a lot of ideas from noble

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Lords and I hope to be able to go on doing so. I therefore thank all noble Lords who have taken part in these debates.

I have one bit of information and one idea to steal from the noble Lord. We think that with the immediate three-year penalty for serious fraud, we estimate that there will be something in the order of 400 cases a year by 2020. The idea I want to take from the noble Lord is one that I do not think we have at the moment. It concerns the redirection of the payment away from the fraudster. That is actually a smart idea in these cases, and perhaps we shall claim it.

Baroness Hollis of Heigham: My Lords, this issue arose on the very first debate of the day. Will the noble Lord apply it where all sanctions occur, thus ensuring that there is an assumption that there will be a switch of payment to the main carer?

Lord Freud: The noble Baroness always takes a finger and seizes the rest of the arm. I have said that I will look at the idea.

It is clear that we do not have an effective deterrent at the moment. The view from the survey shows that people do not think that there is much to worry about from being caught out. We hope that the new regime will actually make people stop and think before committing a fraud. That is its intention, and I welcome the cross-party support for that. I therefore commend these regulations to the House.

Motion agreed.

House adjourned at 10.53 pm.