“(1) Section 71ZB of the Social Security Administration Act 1992 is amended as follows.

(2) In subsection (1), for ‘The’ substitute ‘Subject to subsection (1A), the’.

(3) After subsection (1) insert—

‘(1A) The amount referred to in subsection (1) shall not include any overpayment that arose in consequence of an official error where the claimant or a person acting on the claimant’s behalf or any other person to whom the payment is made could not, at the time of receipt of the payment or of any notice relating to that payment, reasonably have been expected to realise that it was an overpayment.’”—(Siân Berry.)

This new clause would provide that, where universal credit overpayments have been caused by official error, they can only be recovered where the claimant could reasonably have been expected to realise that there was an overpayment.

Brought up, and read the First time.

I beg to move, That the clause be read a Second time.

It is a pleasure speak under your chairship again, Mr Western. I tabled the new clause as a probing amendment. In short, it would bring the test for the recovery of universal credit overpayments caused by official error into line with regulation 100(2) of the Housing Benefit Regulations 2006, meaning that they could be recovered only where the claimant could have reasonably been expected to realise that there was an overpayment.

Let me provide some background on why the new clause is needed. According to Department for Work and Pensions data, in 2023-24 the best part of 700,000 of the new universal credit official error overpayment debts entered into the DWP’s debt management system were caused not by fraud or claimant error but by Government mistakes. Unlike for many other benefits, the DWP can recover official error universal credit overpayments from claimants. This power was introduced through the Welfare Reform Act 2012, and represented a significant change to the position that previously applied to most legacy benefits.

When concerns were raised at the time, assurances were provided by the then Employment Minister that the DWP did

“not have to recover money from people where official error has been made” and that

“we do not intend, in many cases, to recover money where official error has been made.”––[Official Report, Welfare Reform Public Bill Committee, 19 May 2011; c. 1019.]

However, Public Law Project research shows that the DWP’s default approach is to recover all official error overpayments. Relief is dependent on individuals navigating a difficult and inaccessible process to request a waiver. In 2022, only 26 waiver requests were granted.

DWP mistakes matter. The financial and psychological impacts of overpayment debt recovery on individual claimants can be severe. The research I have mentioned found that the recovery of debts, including official error overpayments, by deductions from universal credit led to a third of survey respondents becoming destitute. The risk of harm is particularly acute for official error overpayments, which individuals have no way of anticipating, so they can lead to sudden, unexpected reductions in income that impact existing fixed commitments and carefully planned budgets.

The recovery of official error overpayments brought an added sense of injustice, with individuals finding themselves in debt due to a DWP error over which they had no control. For example, one claimant was overpaid universal credit because the DWP had failed to consider income from her widow’s pension. She had informed the DWP that she received it and was assured that it would not affect her claim. She relied on that assurance and spent the money on daily living expenses. Four years later, the DWP told her that it would be recovering the resulting overpayment of £7,258.08. Aside from the significant financial impact, the stress associated with recovery impacted her mental health. She found herself constantly thinking about the overpayment and how she would pay it back, which in turn impacted on her physical health. She was left anxious that mistakes would be made again, leading to her incurring debt that she had no power to avoid.

Recovery often puts individuals who have relied on payments in good faith in financially precarious situations, forcing them to make difficult choices about sacrificing essentials. Research by the Joseph Rowntree Foundation has found that the current standard universal credit allowance is not sufficient to cover the cost of essentials. In this already difficult context, households that are repaying overpayment debt can lose up to 25% of their standard allowance each month.

People often base key life decisions and financial planning on information provided by DWP officials about their entitlement to universal credit. An official error universal credit overpayment can also have a knock-on effect on people’s entitlement to other support, such as council tax reduction. I am sure the DWP does not want to be responsible for pushing someone into further financial hardship. We can prevent this harm from occurring in the first place with my new clause, which would mean that overpayments can be recovered only where the claimant could reasonably have been expected to realise that they had been overpaid.

The new clause is equivalent to an amendment proposed by Labour Front Benchers during the passage of the Welfare Reform Act. Under the new clause, DWP officials would themselves consider the fairness of recovering an official error overpayment before any recovery was initiated. Increasing protections against the recovery of overpayments would also create a strong incentive to reduce the rate of DWP errors in the first instance, thereby contributing to a more accurate and better functioning welfare system from the outset.

The Bill provides the Government with an opportunity to proactively address a harmful and unfair process that affects hundreds of thousands of claimants each year, easing the financial burden of debt on claimants who have done nothing wrong and encouraging the DWP to get payments right first time. I hope that the Minister will respond to my points on new clause 1, and I sincerely hope that we will make progress on the issue as the Bill progresses.

It is a pleasure to serve under your chairmanship, Mr Western. This is the first time that I have spoken to a new clause in Committee. New clause 1, tabled by the hon. Member for Brighton Pavilion, would amend the Bill so that, where universal credit overpayments have been caused by official error, they can be recovered only where the claimant could reasonably have been expected to realise that there was an overpayment.

I am interested to know how the claimant could reasonably be expected to realise that the amount that they had received was an overpayment, as that would be the test for whether that person becomes liable for repaying the amount. If payments are made to an appointee’s bank account, do they become liable for spotting the overpayment under this new clause? Would the amount have to be repaid only if both the person eligible for the payment and their appointee realised the overpayment?

Are there figures on how much money is lost and recovered due to error? Do we therefore know how much the new clause would cost the DWP? Underpayments in taxes are recovered by His Majesty’s Revenue and Customs in the following months or years even where the individual is not at fault, and it is not clear why universal credit claimants should be any different. It would help if the Minister could explain to the Committee how, in the case of overpayments, a repayment plan will be put in place that is manageable for the person making the payments, and how that will be assessed.

We would be better off focusing on minimising official errors in the first place. What work is the DWP doing to better guard against overpayments, given that the overpayment rate for universal credit was 12.4% or £6.46 billion in the financial year ending 2024, compared with 12.7% or £5.5 billion in the financial year ending 2023? I argue that we need to focus on ensuring that overpayments are not being made, but once the error has been made, particularly because it is so costly to the taxpayer, we should try to ensure that the money is recouped.

It is a pleasure to serve under your chairmanship, Mr Western. I support the new clause tabled by the hon. Member for Brighton Pavilion. On several occasions over recent weeks, Ministers have gone on the record to describe the DWP and the benefits system as a “broken” system. It is extremely helpful that the hon. Member highlighted the impact that that can have on people who often have chaotic lives and are on the edge.

I have served the people of Torbay in elected office for 30 years. Over that time, I am saddened that, particularly with the recent cost of living crisis, the levels of destitution have become worse, as I hear from people who provide food banks and other support for the people in need in Torbay. Whether it is Scope or the Joseph Rowntree Foundation, many of those good organisations highlight to policy developers that the levels of benefits are really tough and the levels of destitution in our communities are higher than they have been for many years. Therefore, I would welcome some thoughts from the Minister about this proposal, because sadly, recovery will often drive people into destitution and, as highlighted by the hon. Member for Brighton Pavilion, into severe ill health.

It is a pleasure to serve under your chairship once again, Mr Western. Before I come to my general comments on the new clause from the hon. Member for Brighton Pavilion, I will attempt to respond to some of the questions that we have heard.

On how we can assure ourselves that people could reasonably have known, this assessment is made by our specialist investigation teams, who do this day in, day out. There is a balance of probabilities that they would apply to instances such as that. It is a process that has been in place for years. On whether an appointee would be liable for an overpayment, yes, they would. How much is official error? It is approximately 0.3% of all benefit payments. About £800 million is the most recently available annual figure.

On how a repayment plan is agreed—this goes to the point that the hon. Member for Torbay made also—we again have a specialist team who calculate this. We have a vulnerability framework should that be required. All repayment requests are done on an affordable basis. As we heard last week, the specifics around the new debt recovery power make attempts, throughout the process, to agree an affordable repayment plan. The limits that the Bill would put in place would be not more than 40% in the case of an ongoing deduction and 20% in cases of error. On the point about recovery causing destitution, which the hon. Gentleman also made, he will have noted that towards the end of last year, the Department announced its new fair repayment rates, reducing the amount of deduction that can be made from benefits down to 15%. As I have just outlined, further provision is made where we are looking to take these new powers to deduct directly from bank accounts.

To return to the point that the hon. Member for South West Devon made about prevention of overpayments, the eligibility verification measure is intended to help us to identify fraud, particularly in relation to capital, and people who have been abroad longer than they should be, in terms of aligning that with their eligibility for benefits, and we think that it will enable us to identify error overpayments sooner as well. Of course, people are regularly reminded to update their circumstances also. A range of mechanisms are in place already to assist with the identification of overpayments. We are not complacent. We know that there are too many overpayments through official and claimant error, just as there is far too much fraud in the Department. That is why we are taking many of the steps identified and outlined in this Bill.

Before I turn to my comments about new clause 1 specifically, let me just make a correction to something that I told the Committee last week. I said that the minimum administrative penalty that can be offered, which receives a four-week loss of benefit, is £65. I misspoke and I would like to take this opportunity to correct the record and state that the amount is £350.

New clause 1 seeks to amend existing recovery legislation, to limit when overpayments of universal credit and new-style benefits caused by official error could be recovered. Specifically, those official error overpayments would be recoverable only where the claimant could have been reasonably expected to realise they were not entitled to the overpayments in question at the time they received them. This Government are committed to protecting taxpayers’ money and ensuring that we can recover in a fair and affordable way money owed. The debt recovery powers in the Bill apply to all debt that Parliament has determined can be pursued. Section 71ZB of the Social Security Administration Act 1992, introduced in the Welfare Reform Act 2012 under the coalition Government, made any overpayment of universal credit, new style jobseeker’s allowance and employment and support allowance in excess of entitlement recoverable. That includes overpayments arising as a result of official error.

Official error can arise for a number of different reasons. Some errors, for example, occur as a result of the flexibility of the universal credit system. Unlike the tax credit system it replaces, UC works on a monthly cycle of assessment periods. It is to be expected that on occasion, corrections or changes take place over assessment periods. The system quickly rectifies these “errors” in the next assessment period and it is vital that this functionality is maintained. In these instances, the customer is not worse off as, over the course of subsequent assessment periods, they receive the correct amount on average. It is also helpful to explain that under existing departmental processes, customers have the right to request a mandatory reconsideration of their benefit entitlement as well as the amount and period of any subsequent overpayment. Following that, they can appeal to the first-tier tribunal, should they still disagree with the Department’s decision.

We recognise that overpayments, however they arise, cause anxiety for our customers. The Department’s policy is therefore to recover debts as quickly and cost effectively as possible without causing undue financial hardship to customers. DWP’s overall approach to recovery balances the need to protect public funds by maintaining recovery levels, while providing a compassionate service to all customers regardless of their circumstances. The Department’s policy is therefore to agree affordable and sustainable repayment plans. The debt recovery measures in the Bill, however, are last-resort powers for debtors who are no longer on benefits or in pay-as-you-earn employment and are persistently evading debt recovery. These powers apply across all types of debt.

All our communications to our customers signpost to independent debt advice and money guidance, and we heard from the Money and Pensions Service in our evidence sessions about how strong the partnership working between the Department and debt sector is. DWP is committed to working with anyone who is struggling to repay their debt and customers are never made to pay more than they can afford. Where a customer feels they cannot afford the proposed rate of recovery, they are encouraged to contact the Department to discuss their repayment terms. The rate of repayment can be reduced or recovery suspended for an agreed period, and the Department may also consider refunding the higher deduction that has been made. The Department’s overpayment notifications have been updated to make sure customers are aware they can request a reduction in their repayment terms. In exceptional circumstances, the Department has the discretion to waive recovery of the debt, in line with the Treasury’s “managing public money” guidance. In doing so a range of factors are considered including the circumstances in which the overpayment arose.

Finally, I have listened to and take seriously the concerns from the hon. Member for Brighton Pavilion. As the Committee is aware, the Minister for Social Security and Disability is looking at the policy design of universal credit to ensure outcomes that tackle poverty and help people to manage their money better. I will pass the concerns raised by the hon. Lady on to him, but having outlined the reasons against it, I will resist new clause 1.

I thank the Minister for taking seriously the concerns I raised. I will not press the new clause further today, but I hope that it will be looked at seriously in the next stages of the Bill, and that we can discuss this further in the House. I therefore beg to ask leave to withdraw the motion.

Clause, by leave, withdrawn.