Supreme Court victory: overpayment recovery

Issue 220 (February 2011)

Sarah Clarke reports on the decision of the Supreme Court on the recovery of benefit overpayments via the ‘common law’.

This was a case brought by CPAG, which challenged the Secretary of State’s assertion that he was entitled to recover social security benefits overpaid by mistake at common law in restitution and did not have to follow the statutory procedure in s71 of the Social Security Administration Act 1992.1 Readers of Welfare Rights Bulletin may remember that over 65,000 letters were sent to claimants who had been overpaid because of departmental error, asking them to repay, with notes accompanying the letter saying that if payment was not made, action for recovery would be taken through the county court. The Department for Work and Pensions recovered just over £4 million in this way in 2007/08.

The Secretary of State appealed against a Court of Appeal decision in CPAG’s favour. In a judgment given on 8 December 2010, the Supreme Court dismissed the Secretary of State’s appeal. It agreed with CPAG that, rather than excluding a common law right of recovery, section 71 and its predecessors created a power of recovery where otherwise there was none. That was because, before the Social Security Act 1998, there was a division of the functions of adjudication on the amount of the award and the payment of the award. At the time the test was originally enacted, the Secretary of State could not have made a mistake in calculating the award because he was not involved in this part of the decision. He, therefore, had no power to recover benefits overpaid because of errors in the calculation of the award.

Lord Brown added that it would have been inconceivable that Parliament would have intended to leave a common law power of recovery open to the Secretary of State alongside the carefully prescribed statutory scheme, as this would have created problems such as double recovery under s71 and via the common law, and he noted that the scheme did not allow for recovery of overpayments made by mistake.

Sir John Dyson dismissed the Secretary of State’s argument that s71 could not have been taken to exclude the possibility of a common law right of recovery arising in the future. He took the view that the change in the decision-making functions in the Social Security Act in 1998, which was not accompanied by any change to the statutory criteria for recovery of overpayments, was not intended to widen the Secretary of State’s powers of recovery. He further took the view that the test of whether the right to recover at common law was excluded by statute was not one of ‘necessary implication’, but was one of statutory interpretation. That was whether, looked at as a whole, a common law remedy would be incompatible with the statutory scheme. He agreed with Lord Brown that it was.

The judgment is the final stage in this case, and it means that the DWP cannot send out these letters under the law as it currently stands.

Sadly, this is not the end of the matter. On 12 January 2011, Chris Grayling announced in the House of Commons, in response to a parliamentary question, that changes to the test for overpayment recovery will be made in the forthcoming Welfare Reform Bill, making official error overpayments recoverable. This had been foreshadowed by the DWP/HM Revenue and Customs paper Tackling Fraud and Error in the Benefit and Tax Credits Systems.

‘While the Department must take responsibility for its mistakes, that does not give people the right to keep taxpayers’ money that they are not entitled to.

However, we recognise that recovery will not be appropriate in all cases, and the legislation will be supported by a code of practice which will set out the type of case where recovery action will not be taken. This will include overpayments arising from official error where the customer accepted the payment in good faith and where, given the customer’s circumstances, it would be unreasonable for the money to be repaid.’

This sounds horribly like the tax credits test in which the legislation declares that all overpayments are recoverable, but guidance sets out discretionary grounds on which they may not be recovered. If this is what the government is proposing, let us hope it has learnt the lessons taught by the unpopularity of the test as it applied to tax credits, and will think again. It should at least set out a test in Regulations that is subject to a right of appeal to a tribunal. Otherwise, MP’s waiting rooms will once again be filled with claimants complaining about the unfairness of the system.

Advisers should note that that the decision in this case does not apply to tax credits, nor does it apply to housing benefit. It also does not apply to payments which are not made under an award such as duplicate payments and interim payments.

Note: The DWP has agreed to identify claimants who repaid or made arrangements to repay on the basis of the unlawful letters, and to repay where appropriate.

 


Please be aware that welfare rights law and guidance change frequently. Therefore older Bulletin articles may be out of date. Use keywords or the search function to find more recent material on this topic.

  • 1. The Child Poverty Action Group v Secretary of State for Work and Pensions [2010] UKSC 54, 8 December 2010