Report examines tackling benefit overpayment debt

• Report: Department of Work and Pensions: Management of Benefit Overpayment Debt
• Committee of Public Accounts

Edward Leigh MP, Chairman of the Committee of Public Accounts, today said:

"An immense amount of money, currently £1.85 billion, is owed to the Department for Work and Pensions by claimants who have been paid too much benefit. The size of the debt is increasing, moreover, as the amount of overpaid benefit being clawed back is outstripped by the amount referred for recovery action. The current economic malaise is only likely to make worse the rate at which debt can be recovered.

"If the Department is to deal with this rising trend in benefit debt, then it has to improve the way it approaches the prevention of debt. It should also review its procedures for validating claims for Income Support, a benefit which is particularly susceptible to big overpayments.

"It needs to set targets to reduce the debt owed by claimants with multiple and high-value debts, as well as targets for the difficult process of recovering money from claimants who regularly move on and off benefits.

"The Department needs to equip itself with more up to date methods for recovering debt. It is currently trying to recover money without the sophisticated information it needs on the respective risks posed by different groups of debtors, together with data on the respective rates of return from these groups and ways of monitoring and measuring the effectiveness of different kinds of recovery strategy."

Mr Leigh was speaking as the Committee published its 20th Report of this Session which, on the basis of evidence from the Department for Work and Pensions, examined the action it was taking to tackle overpayment and stem the rising trend in benefit debt; improve its knowledge of its client base; and set realistic targets to improve debt collection and improve write-off.

The Committee's report says the Department has been successful in improving the effectiveness of its debt identification, referral and recovery procedures, increasing cash recoveries from £180 million in 2005–06 to £281 million in 2008–09. However, yet again, evidence proves that the Department needs to significantly improve how it makes benefit payments, it adds.

Recovering debt

The total amount of money owed to the Department as the result of benefit overpayments is now £1.85 billion and is rising as recoveries are not keeping pace with the increase in referrals, the Committee says. As the rate at which debt can be recovered is limited by the financial circumstances of many of the Department’s customers, the current economic downturn may place further pressure on the debt stock.

Helping customers avoid getting into debt is important for both the Department and its customers in managing their finances, and the increasing total level of debt reflects the difficulty of recovering money once overpayments have occurred, the Committee says.

Overpayments arising from Income Support accounted for over 70 per cent of all debts at 31 March 2008. It is therefore critical that the Department improves its debt prevention procedures and intervenes more directly to check that the circumstances of customers have not changed, the report adds. It should also increase its knowledge of customers, such as by risk profiling.

In 2007–08, some £9.3 million of small overpayments below £65 were written off because the Department considered them too small to justify the cost of recovery action. But the Department does not distinguish between different types of debtor or different recovery routes in assessing whether the costs of recovery are likely to outweigh the benefits.

Open to abuse

Moreover, the Department does not have a reliable means of verifying what level of repayment its debtors can afford and this process is open to abuse, the report concludes. It adds the Department has begun to assess the feasibility of selling off some or all of its debt but would need to safeguard the welfare of vulnerable customers in any future sale.

The report concludes the Department has been slow to improve the quality of its management information. It needs to benchmark performance more actively with the private sector and assess the relative cost effectiveness of different recovery processes.