Social Security (Claims and Payments) Amendment (No. 2) Regulations 2010

Lord Freud Excerpts

Monday 21st June 2010 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, I thank my noble friend for tabling the Motion and for giving me the opportunity to explain how this voluntary debt recovery trial will be evaluated. I take the point about the numbers in the House for this debate—this is an exclusive group—but I can claim to be a member, albeit a new one, of the DWP regret club from earlier this year. I need, however, to apologise, albeit on behalf of the previous Administration, for the fact that the Merits Committee was not provided with sufficient information when the regulations came before it.

I should say by way of background that the amendment to the Social Security (Claims and Payments) Regulations 2010 will enable voluntary deductions to be taken from a person’s social security benefit to repay certain HMRC liabilities of under £1,000. The types of debt included are those arising from overpayments of tax credits and those arising from personal tax liability.

The transition from work to benefit can be difficult. Before the previous Government introduced tax credits, it was possible for overpayments of in-work benefit, then known as family credit, to be recovered from other social security benefits. Once tax credits were introduced, this option ceased, even though many customers found it an easy and convenient repayment method. The regulations reinstate this option for those who wish to use it. As well as providing a convenient method of repayment for individuals, this will help those unfortunate enough to have a debt with both the Department for Work and Pensions and the HMRC. Under current processes, both departments could seek repayment independently and both expect repayment. Under the trial process, the departments will work together and ensure that customers have only to repay one debt at a time.

Participation in the trial is purely voluntary. There is therefore no question of excessive compulsory deductions being taken from a customer’s benefit. The option to use this form of repayment and the rate at which any deduction is made will be agreed with the customer before any repayment commences.

This brings me on to the issues raised by the Merits Committee and by my noble friend in this Motion. It is suggested that the trial has been based on inadequate design which will be unable to produce reliable evidence for evaluation. The real issue is perhaps rather that the Explanatory Memorandum failed adequately to explain the design of the trial and specifically the evaluation protocols. This is regrettable and I fully accept that the Merits Committee should always be given sufficient information in order fully to assess the validity of regulations coming before it. In fact, even before this Motion was tabled, the department had written to the Merits Committee, giving a much fuller account of the proposed evaluation methodology than was provided originally.

It may be helpful at this point if I give some details of how DWP and HMRC will work together to run and evaluate the trial. We intend to approach tax credit customers and self-assessment customers who are in receipt of a relevant social security benefit and have new debts to HMRC. My noble friend criticised the structure of the trial as being a case of garbage in and garbage out. I think that the issue is that it is rather more narrowly focused than a wider trial might be.

The aim is to assess whether voluntary deduction of debts owed to HMRC from DWP benefits is attractive to debtors and a cost-effective means of recovery. Outcomes of the trial will be compared to outcomes achieved through existing HMRC debt recovery methods. The trial will provide evidence to inform any future decisions on use of deductions from benefits. If the trial evaluation shows that this is a cost-effective recovery method for government and that it is attractive to customers, it will be retained post trial. However, if that proves not to be the case or there proves to be no interest from customers, it will not be continued beyond the period of the trial.

The objectives of the trial are, first, to test proof of concept. By that, I mean to ensure that the deductions process is operationally effective, that customer information is safeguarded, that customer records are updated and that additional cash recoveries are accounted correctly. The second objective is to assess levels of customer take-up and the factors which motivate customers to participate in the trial or to pay directly to HMRC.  The third is to assess cost-effectiveness; that is, the additional recoveries achieved net of departments’ costs.

There will be three groups for evaluation purposes. The first group will consist of those customers who volunteer to take part in the trial. The evaluation will look at how much was recovered, the spread of weekly deduction rates and how long a person is in receipt of a relevant benefit from which deductions can be made. The DWP and HMRC will both analyse their costs in running the trial to permit an overall cost to Government to be calculated. In addition, the performance of new joined-up operational processes between HMRC and the DWP will be assessed. As part of the evaluation, HMRC will seek feedback from its customers on the effectiveness of the trial and their overall customer experience.

--- Later in debate ---

[Noble Lords]

Ha!

[Lord Freud]

I will not rise to that.

My noble friend Lord Kirkwood asked when the trial was due to start. It will start next month, and the first letters will go out then. We do not intend to cancel this trial; we will go ahead with it, although we will extend it only if it is successful.

The noble Lord, Lord McKenzie, asked whether other methods of repayment would be available. Clearly, if the customer signs up for the trial, no other method will be used. If the customer does not sign up, the repayment methods could be lump sum or instalments by direct debit or standing order. He also asked whether the new Government stand by the decision to deduct at three times the 5 per cent rate. Yes, we stand by that, but it is the maximum rate and participants can choose a lower rate. Finally, he probed the question of other ways of applying sanctions. This is, of course, not a sanction—it is a repayment of a debt—although I can tell him that we are exploring non-financial sanctions.

I commend the principle of the trial as a convenient alternative repayment method for those who wish to use it and as an example of joint working. The design of the trial is adequate, but I accept the criticisms of the Merits Committee and of my noble friend Lord Lucas. We need to get this right in the future. We need to make sure that all our regulatory changes meet the standard expected by the Merits Committee and that we provide all the necessary supporting information in good time.

[Lord Lucas]

My Lords, I am extremely grateful to my noble friend for that comprehensive and helpful reply. I shall not trade blows with him on matters to do with welfare, as I am merely an extremely junior acolyte at his feet. This has been a fascinating debate for me and I shall feel tempted, now that we have a Minister in this House who is so much at the forefront of welfare reform, to sit on the Benches and, at least, to listen. However, I am quite happy to trade blows with his statisticians.

The Minister has made me understand one thing that I did not understand before. The trial is clearly voluntary, but is he saying that the rollout will also be voluntary, even if the trial is a success? That certainly would remove a lot of my worries. However, the effort being expended to create a control group and to look at what is happening in the second, probably larger group of those who will not take part in the trial rather suggests to me that there was an intention—noble Lords opposite may know whether this is the case—that this should be a compulsory way of reclaiming HMRC debts.

If you want to understand how to operate this effectively with people who volunteer, you do a randomised control trial just with those people. You go on until you have a couple of thousand volunteers and you assign them randomly—half you monitor under the current system and half you monitor under the new system. You then have a conventional and statistically robust way of comparing behaviour. It might be fun and informative, and it might have a peripheral virtue to try to understand why the people who have not volunteered have not done so and to try to find out how to encourage them to do so in future, but you certainly would not bother with this functionless control group that sits as an appendage at the bottom.

As I say, there is a simple and statistically robust way of dealing with this if the trial is for a voluntary system, which would not have all the characteristics of the trial that has been put in front of us. If the Minister is prepared to set up a meeting with his statisticians, I should enjoy it very much, because I do not think that they have come up to the mark on this occasion if, as I say, this is a trial for a voluntary system. If I am wrong and this was designed as a trial for a compulsory system, I come back to my old criticism that it does not function as that. You do not get enough information on the likely behaviour of the people who have declined to take part in the trial to be able to predict how they would react if they were compelled to take part.

However, I cannot be churlish when I have received such a good reply from my noble friend, particularly if he sets me up with a tea date with his statisticians—and how could any statistician refuse tea in the Lords? Whatever the circumstances, I happily beg leave to withdraw the Motion.