Housing Benefit and Council Tax Benefit Circular. For information. Overpayments guidance:

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1 Housing Benefit and Council Tax Benefit Circular Department for Work and Pensions The Adelphi, 1-11 John Adam Street, London WC2N 6HT HB/CTB A13/2006 ADJUDICATION AND OPERATIONS CIRCULAR WHO SHOULD READ All Housing Benefit (HB) and Council Tax Benefit (CTB) staff, especially HB and CTB Overpayments staff ACTION For information Overpayments guidance: SUBJECT Underlying Entitlement, When recovery should commence, the Debt Arrangement Scheme (in Scotland) and Tribunal of Commissioners decision CH/4234/2004 Guidance Manual The information in this circular does not affect the HB/CTB Guidance Manual. The information in this circular affects the content of the HB/CTB Overpayments Guide. Please annotate this circular number against the following headings Underlying entitlement, paras 3.50 to Recovery of overpayments, paras 4.00 to Types of overpayments, para 4.06 Recovery process, para Adding excess CTB to the claimant s CT bill, para Direct payment, paras and Decision notices, paras 5.00 to 5.19 Appeals and recovery, para 6.25 Scotland and the Courts process, para 7.97 Methods of diligence, para 7.110

2 Queries If you want extra copies of this circular/copies of previous circulars, they can be found on the website at have any queries about the technical content of this circular, contact Jane Autherson distribution of this circular, contact Corporate Document Services Ltd Orderline Tel: Fax: Crown Copyright 2006 Recipients may freely reproduce this circular.

3 Contents Overpayments guidance: Underlying Entitlement, When recovery should commence, the Debt Arrangement Scheme (Scotland) and Tribunal of Commissioners decision CH/4234/2004 para Underlying entitlement... 1 When recovery should commence... 8 Recovery from ongoing HB... 8 Software Performance Standards and Performance Indicators Low number of appeals Small overpayments Recovery via invoice Recovery of CTB Debt Arrangement Scheme Recovery action DAS administration charges Further information Tribunal of Commissioners decision CH/4234/ Pre-April 2006 regulations Post April 2006 regulations... 34

4 Overpayments guidance: Underlying entitlement, When recovery should commence, the Debt Arrangement Scheme (Scotland) and Tribunal of Commissioners decision CH/4234/2004 Underlying entitlement 1 Underlying entitlement must be calculated on all overpayments. There are very few exceptions, although one example might be if the Local Authority (LA) is unable to request the information needed to make the calculation, because the customer s whereabouts are unknown. 2 When an LA discovers or is notified of a change of circumstances that has caused an overpayment, they should process that change, which will stop the overpayment continuing. They will then need to decide if they have all the details of the customer s correct circumstances over the overpayment period. In the majority of cases, they will need to gather that information. It is the LA s responsibility to request details of the customer s correct circumstances over the overpayment period, not the customer s responsibility to apply for underlying entitlement to be considered. 3 The information needed in order to calculate underlying entitlement should be requested in accordance with the provisions of regulation 86 of the Housing Benefit (HB) Regulations and regulation 72 of the Council Tax Benefit (CTB) Regulations. These regulations state that the customer should be given one month in which to provide any requested information or evidence, or such longer period as the relevant authority may consider reasonable. This guidance is in accordance with case law. In Commissioner s decision CH/4943/2001, Commissioner Jacobs states that regulation 104 is mandatory and that the LA should use its powers under regulation 73 (new regulation 86) to seek information from the customer in order to calculate the overpayment correctly. 4 If the customer provides the details within the one-month timescale, the LA should recalculate the overpayment, normally reducing it (applying HB regulation 104 or CTB regulation 89), and then issue the customer with their decision notice, giving them the appropriate appeal rights. If, however the customer does not provide the details within one month, the LA should issue the decision notice for the gross overpayment amount, again giving the customer the appropriate appeal rights.

5 5 Calculating underlying entitlement is part of the overpayment calculation. Once a request for information has been made and the details supplied or not supplied, the correct and final overpayment amount should be calculated. If information comes to light after this has been completed and outside the given time limits, the LA should not need to revisit the overpayment decision again. However, the customer may request the LA to accept the details they have provided late and still calculate any underlying entitlement. The LA should follow the normal backdating rules, ie was it reasonable for the information to be provided late. An LA should not automatically recalculate underlying entitlement every time fresh details emerge, which could affect the overpayment period. 6 It is to an LA s advantage to calculate underlying entitlement, because they receive 100% subsidy for it. However, if an LA accepts information, outside of the onemonth time period, when there has been no good cause shown, then this would be contrary to the HB and CTB (Decision and Appeals) Regulations Regulation 8 states that if a customer reported a change, outside of the one-month time limit, and it would mean an increase to the amount of HB/CTB they were entitled to (advantageous change), the change should take affect from the benefit week following receipt of the notification of the change (following Monday). If the change they had reported would mean a decrease in the amount of HB/CTB they were entitled to (disadvantageous change), it should be taken into account from the week it actually occurred. If LAs revisit the overpayment decision every time fresh details emerge, they will not be applying the legislation correctly. 7 An overpayment has not been properly calculated until underlying entitlement has been considered. It therefore should not be recorded for Management Information and Performance Indicator purposes as an amount outstanding, until the correct and final decision notice has been issued. LAs who do record the gross overpayment amount as a debt outstanding before underlying entitlement has been considered will appear to have a higher amount of overpayment debt than they really do have. This would not be beneficial to an LA. When recovery should commence Recovery from ongoing HB 8 Given that a decision as to a recoverable overpayment is appealable, the Department for Work and Pensions (DWP) policy is that when recovery is to be made from an ongoing benefit, recovery should not commence until the one-month appeal rights period has expired. When an appeal is brought before recovery has begun, the action should be postponed until the appeal has been decided. This is not a legislative requirement, but the reasons for why this is considered good practice are justified. This policy is consistent with that of other Social Security benefits, such as Income Support and Jobseeker s Allowance.

6 9 There are various reasons why the DWP considers it good practice to adopt this approach. Giving the one-month period allows the customer time to organise their finances in order for the recovery to commence. They may wish to make a full repayment, rather than having a weekly deduction. It also gives them time to query the overpayment, possibly exercising their right to ask for a full written statement/explanation of how it has been calculated. The customer may want to come to some agreement, asking for a different method or recovery rate to be used. It also, of course, allows them time to seek advice with regards to requesting a revision or actually appealing against the overpayment decision. Other debt recovery bodies follow these guidelines. It is a person s right to be able to query a debt or organise their finances before recovery commences. 10 We organised a meeting to discuss this policy matter, involving representatives from the DWP, Benefit Fraud Inspectorate, Local Authority Associations, Citizens Advice Bureau, Child Poverty Action Group and DWP s Debt Management. There were lots of different views and opinions on the way the recovery process should be handled. Some of the reasons that people were against delaying recovery for one month are listed below. Software 11 Some LAs software will not allow a delay to recovery, and officers would have to re-visit the case after one month to set it up. Also some software companies will not change the system unless the process is set down in legislation. We did have an LA representative at the meeting whose software does delay recovery and the reason it does this is because they instructed their software company on how they wanted their system to work. Staff should not therefore have to re-visit the case to commence recovery. Not all administrative processes in the DWP guidance are legislated for, but that does not mean that they are not important and should not be applied. Performance Standards and Performance Indicators 12 Delaying recovery will be detrimental to LAs trying to achieve the Performance Standards and Indicators. All LAs should be following the same guidance and so therefore should be on an equal footing. At present we have some LAs correctly applying the one-month delay, whereas others are beginning recovering immediately, sometimes before the customer has even received the overpayment decision notice. This is therefore detrimental to those LAs who are applying the guidance correctly. The Performance Standards state that there must be regard to policy issues such as the wider consequences of recovery action.

7 Low numbers of appeals 13 Only a small number of customers actually appeal against their overpayment decision, so delaying recovery on all overpayments is a waste of time in most cases. Small overpayments Delaying recovery for one-month is sensible, not only because the customer may decide to appeal against the decision, but also because HB and CTB are welfare benefits and so welfare issues must always be considered. Overindebtedness is very high on the Government s agenda. Now that we have the Inland Revenue (IR) administering benefits, there is the chance that a customer could face having deductions made by the IR, the DWP and the LA, all at the same time. If deductions are taken without giving the customer time to organise their finances, they could face severe hardship. 14 Overpayments for small amounts can be deducted very quickly, sometimes in one or two instalments. It is not therefore necessary to wait one month for these cases. There could be a de minimus level above which ongoing recovery should not commence. Who decides the definition of a small overpayment? What is a lot of money to one person may not be a lot to someone else. The arguments on overindebtedness again apply to the recovery of small overpayments. Taking a deduction, however small, without giving the customer time to sort out their financial affairs could cause hardship. Recovery via invoice 15 There is no reason why invoices should not be issued within the one-month appeal rights period. The reason for this is that the LA will not actually be physically taking any money, and so therefore cannot cause any undue hardship. First and second reminders can also be issued, as again the customer is not being made to pay anything without their knowledge or consent. Issuing invoices acts as a reminder about the customer s appeal rights, and the timescales in which to do it. The customer will usually be asked to contact the LA if they cannot afford to pay back the overpayment in one go. They can then arrange how they are going to repay it and at what rate. However no court action should be taken prior to the appeal rights period ending. Recovery of CTB 16 Excess CTB is usually recovered via the council tax account. There is no reason why the excess CTB cannot be posted to the council tax account within the onemonth appeal rights period. This action should not result in the customer having money deducted with little or no warning. The council tax section should issue a new council tax bill, which as with invoices, acts as a reminder about the customer s appeal rights.

8 Debt Arrangement Scheme 17 The Debt Arrangement Scheme (DAS) came into force, in Scotland, on 14 November No similar scheme yet operates in England or Wales, although English and Welsh LAs may have debtors residing in Scotland who may be involved in the DAS. 18 The DAS is a programme available to debtors habitually resident in Scotland, with two or more outstanding debts and sufficient income available to make repayments to creditors. This will probably exclude the majority of benefit recipients, particularly those in receipt of income related benefits. 19 It was introduced by the Scottish Executive (SE) to protect debtors from diligence (enforcement) and sequestration (bankruptcy), but also to fill the gap left by the abolished Scottish diligence of poindings and warrant sales (sending in the bailiffs). 20 The legislation for introducing the DAS is The Debt Arrangement and Attachment (Scotland) Act 2002, and The Debt Arrangement Scheme (Scotland) Regulations 2004 (Scottish SI No 468 of 2004) The Scottish Parliament passed this legislation. Recovery action 21 Whilst a debtor has a Debt Payment Plan (DPP) in place under the DAS, enforcement action cannot be taken against them. The SE holds a register of all debtors who have a DPP. The register must be checked for the existence of a DPP before enforcement action can be considered. LAs should have their own processes in place with the SE to enable them to carry out this check. 22 Where a debtor is in receipt of benefit and recovery by deduction is in place or is being put in place, this should continue. Additionally where a debtor returns to benefit, recovery by deduction should commence. The DAS does not affect the ability of LAs or DWP to recover by these means. 23 Where a debtor returns to benefit whilst a DPP is in place and you want to instigate recovery from benefit, the Money Adviser and the Payment Distributor dealing with the debtors DPP should be notified, so that double recovery can be avoided. 24 If HB or CTB are not in payment, but the claimant is in receipt of another Social Security benefit, LAs can make a referral to Debt Management in the normal manner. However, where deductions are already being made from this benefit in respect of another benefit overpayment, the LA may apply to participate as a creditor in the DAS. 25 Where a court asks the LA to recover via benefit for an Administrative Penalty or under a Compensation Order, recovery can be made from ongoing benefit as normal.

9 DAS administration charges 26 The Payments Distributor who divides the debtor s money amongst the creditors will charge you a percentage of the payment for their services in distributing the money owed to you. They will usually bill you separately for this charge. 27 Any charge will probably be recoverable from the debtor but will not be recoverable by deduction from benefit. The LA should seek their own legal advice before recovering any charges made under DAS, and also consider whether recovery of any charges will cause the customer undue financial hardship. Further information 28 Further information on all aspects of the DAS, including the legislation and the guidance for creditors can be found on the following website Tribunal of Commissioners Decision CH/4234/04 29 The Tribunal of Commissioners (ToC) decision CH/4234/04 (Tejan-Jalloh) deals with the issue of whom to recover an HB overpayment from and the relevant appeals rights. It looks at the Social Security Administration Act 1992, section 75(3)(a) and (b), and Regulation (Reg) 101 of The Housing Benefit (General) Regulations The ToC also comment on the position since Reg 101 was amended in April Pre-April 2006 Regulations 30 Where HB is being paid direct to the landlord, any overpayment is always recoverable from him as the person to whom the overpayment was made, as well as from any other person within the scope of Reg 101(2), ie the claimant or his partner), unless Reg 101(1) applies. The LA must then make a further discretionary decision on recoverability, ie who they are actually going to enforce the right of recovery against and recover the overpayment from. This is a non-justiciable choice falling to the LA, and is not within the scope of the right of appeal (please refer to paragraphs 52 and 55 of the decision). 31 The ToC suggest that where overpayments are recoverable from more than one person, the LA should make a single decision referring to all those from whom the overpayment is recoverable, and copy this decision to all those persons.

10 32 If the LA decide that the overpayment is not recoverable from the person to whom it was paid, then in their decision they should record both that decision and the decision as to the person or persons from whom the overpayment is recoverable. The single decision notice should then be sent to all parties involved. This would mean that if there should be an appeal, all those potentially affected by it would be parties to it. This would avoid the danger of an appeal tribunal simply setting aside the decision under appeal and remitting it to the LA, as they were unable to find that the appellant was not the only person from whom an overpayment was recoverable, as the other person was not a party to the proceedings (paragraphs of the decision). 33 It is recommended therefore that LAs issue decision notices to all parties involved in the claim that the LA could legally recover the overpayment from. We feel that there should only be one decision notice, which covers all parties from whom the overpayment is recoverable, and they should all be sent a copy of this notice (paragraph 60 of the decision). Post April 2006 regulations 34 Where HB is being paid direct to the landlord, but the claimant has misrepresented or failed to disclose a material fact, then the overpayment is only recoverable from the claimant, under Reg 101(2)(a)(i) (paragraph 57 of the decision). 35 It is not now possible to recover from the landlord in all cases where HB is paid direct. The ToC (at paragraph 57) clearly set out their view that there are two exceptions to the general rule that recovery may be sought from the claimant and his partner as well as the landlord, namely The first exception is where regulation 101(1) has the effect that the person to whom the overpayment was made has no liability and the second exception is where regulation 101(2)(a) has the effect that only the person to whom it applies is liable (although it is possible for both the person to whom the payment was made and the claimant and his partner to fall within the scope of regulation 101(2)(a) themselves). 36 Section 75(3)(a) and (b) must be read as a whole. Whilst this is not expressly referred to by the ToC in the context of the new Regs, it is discussed at paragraphs 51 and 52 in the context of the 2001 Regs, and the primary legislation is the same for both. At paragraph 51 the ToC say: we therefore accept that the draftsman of section 75(3)(b) intended the scope of the regulation making power to be wider, so that regulations may be made that have the effect that an overpayment may be recoverable from a prescribed person instead of the person to whom the overpayment was made even where regulations under section 75(3)(a) do not apply.

11 37 As accepted by the ToC at paragraph 57, regulation 101(2)(a) of the 2006 Regs exercises this power to prescribe persons from whom recovery can be made instead of the person to whom the overpayment was made. 38 We have looked at the situation where the LA decided under Reg 101(2)(a) to recover from one person because they thought he had misrepresented, but that person appealed and the Appeal Tribunal found in his favour. The LA then changed their decision and decided that another person had misrepresented, but he also successfully appealed. This could be a possibility. We feel the solution is for the LA to issue a single decision notice copied to all parties. This notice should record from whom an overpayment is recoverable, ie the prescribed persons in regulation 101(2)(a)), and the persons the LA decide the overpayment is not recoverable from, as they do not fall within regulation 101(2)(a). Under the 2006 Regs, it must be remembered that an overpayment is not recoverable from the person to whom the overpayment was made, if another person is caught by Reg 101(2)(a). 39 A problem has been identified with regards to recovery using the blameless tenant recovery method. Schedule 9, paragraph 15(2) of the HB Regs 2006 provides that where the LA decides to recover an overpayment from a landlord, using the blameless tenant procedure, that the decision notice sent to that landlord shall identify both (i) the person on whose behalf the recoverable amount was paid to that landlord; and (ii) claimant A, where claimant A is the blameless tenant. The ToC want a single decision notice on recoverability to be sent to all those from whom the overpayment is legally recoverable, regardless of who is or is not going to be pursued for recovery. 40 In order to satisfy both the legislative requirement and the ToC, we feel the decision notice sent to the first claimant and to the landlord should be identical when stating that there is a recoverable overpayment and from whom the overpayment is recoverable. There should however be an additional paragraph added only to the landlord s notice, which deals with the method of recovery from claimant A.