Larusai, R (on the application of) v Secretary of State for Works and Pensions

MR JUSTICE NEWMAN: This application for judicial review challenges an exercise of discretion by the Secretary of State for Works and Pensions whereby he declined to reduce an amount he was entitled to recover from the claimant, it being an overpayment secured by her fraud or misrepresentation, by the amount of a notional calculation of what, had she applied for it, she would have been entitled to by way of working families tax credit (WFTC).

The statutory position commences with section 71 of the Social Security Administration Act 1992. Part III of the Act is headed "Overpayments and Adjustments of Benefit", and section 71(1) provides as follows:

Pursuant to that subsection, regulations have been made, namely Social Security (Payment on account, Overpayments and Recovery) Regulations 1988, plainly made under the predecessor of this statutory provision, but being, as I understand it, the regulations in force. Regulation 13 is the material one and is headed "Sums to be deducted in calculating recoverable amounts":

The legal effect of the provisions has not been in contention between counsel. After some argument or, one might say, explanation provided to the court, the court is satisfied that the proper interpretation of section 71(1) is that it confers upon the Secretary of State a power to recover the amount of any payment which he would not have made or any sum which he would have received, but for the misrepresentation or failure to disclose by any person.

I am satisfied that the discretion is to be exercised after consideration has been given to the sum which is recoverable in accordance with the Regulations made under subsection (6) of the Act. The important words in subsection (6) are that "Regulations may provide ... that amounts recoverable under subsection (1) may be prescribed". The determination of any sum recoverable under subsection (1) of section 71 is a prior step to the Secretary of State's exercise of discretion as to the amount which should be recovered: namely, whether he considers that the whole of the sum which is recoverable should be recovered, or whether no part of it should be recovered, or only some part of it. A particular point which has fallen for comment arises out of the terms of the Regulations, and in particular regulation 13, which, in stated circumstances, does not accord the Secretary of State or the adjudicating authority any choice in determining the amount recoverable and requires deduction of certain benefits, namely any amount of income support or state pension credit or income based job seeker's allowance.

In this case it is accepted that the particular benefit which the claimant submits should have given rise to a credit, namely the working families tax credit, is outside the Regulations because regulation 13(1)(b) provides:

That being the statutory position, I should set out the grounds of challenge as they remain, or as Mr Chamberlain, counsel for the Secretary of State, would emphasise, as they survive the application for permission before Crane J. I do not intend to go over the detail, but, in broad terms, the application for permission contained an argument under the Human Rights Act (Article 3 and/or 8) and a challenge to the vires of the regulations, in particular regulation 13 to which I have just referred. Those matters were not the subject of the grant of permission, and the matter has proceeded before me on the following grounds, which I will briefly summarise: (1) that the Secretary of State has misinterpreted the policy which is laid out in the Accounting Policy Document 2000 and a briefing policy letter dated January 2002; (2) that he has acted unlawfully because he has exercised his discretion on this occasion so as to penalise the claimant, when matters of penal enforcement are not for him; (3) that he has exercised his discretion on this occasion so as to gain a windfall for the State; and (4) that he has exercised his discretion without paying sufficient attention to the question of hardship to the claimant and her child.

The basic facts are that the claimant is a single woman who has one dependent child who lives with her. She is a national of Rwanda and has been granted exceptional leave to remain in the United Kingdom. She has been at all times which are material to this case, up to and including 2nd October 2000 and thereafter, a beneficiary of income support, pursuant to section 124 of the Social Security Contributions and Benefits Act 1992. On 2nd October 2000 she obtained a job as a resident support worker at a care institution. She worked there for 24 hours a week, but she failed to disclose this fact to the Benefits Agency. On 19th July 2001, the Fraud Unit notified the Benefits Agency that the claimant was working, and as a result of this notification, payment of income support was suspended. On 23rd August 2001 the Benefits Agency determined that the claimant had been overpaid income support from 16th October 2000 to 16th July 2001, amounting to £3,234.96. That is the sum which, in accordance with section 71(1) of the 1992 Act, is recoverable, subject only to the operation of the Regulations.

It is said she would have been entitled to apply for WFTC but did not. It follows that, according to the Regulations, the adjudicating authority are not bound to give credit for any amount which she would have received had she made such a claim, which is estimated at £2,000. It follows that the issue is whether, in concluding as he did that no credit would be given for the notional WFTC figure of £2,000, the Secretary of State has unlawfully exercised his discretion under section 71(1).

I shall, of course, have to return to the arguments which have been advanced as far as hardship is concerned, but it may be convenient at this stage if I set out the simple consequences of the Secretary of State's decision as it stands upon the figures which have been worked out: the present figure of £3,234.96 will be deducted from the benefit she is now entitled to receive, at £2.70 a week. Assuming the current state of affairs prevails and she remains liable to repay £3,234 at a rate of £2.70 per week, it will take 23 years for repayment to take place. She is now aged 37.

If the argument for the claimant is right and £1,324 is to be recovered at a rate of £2.70 a week, it will take 8.79 years to recover the amount. It will be convenient to return to the arguments and issues on that position later in the judgment.

I turn to the question of policy, the first ground of challenge. It requires reference to one or two extracts in the evidence. First of all, the witness statement of Mr Keith Rogers. He is employed by the Board of Inland Revenue in the personal tax division, in the team with responsibility for tax credits policy. He states at paragraph 2 of his statement:

Then a brief extract from Mr Peter Lyons. Mr Lyons in paragraph 20 points out that the exercise of discretion to waive a recoverable payment is governed by departmental policy. He then points out in paragraph 21:

He then makes reference to the department's -- namely the Department for Work and Pensions' -- own policy guidance in respect of the matter, which contains the following:

Then he goes on to point out that:

Next, he goes on to point out that it would be costly and inefficient for the calculations to be made in relation to WFTC, and he acknowledges that, although the department does occasionally make such calculations when requested to do so, for example by a Magistrates' Court, any dispute about the amount of the notional payment would have to be referred to the Inland Revenue before resolution.

Historically, notional entitlement to family credit was a matter for the department prior to 5th October 1999 but in respect of questions in relation to WFTC, which as I understand it replaced family credit, the policy is as has been stated and I have endeavoured to summarise.

Next, the Government Accounting 2000 document. There is no question, and no submission in fact from Mr De Mello to the contrary, that this is plainly a general policy document for all government departments. It thus lays out in terms which are material for all government departments what might be said to be the pointers and guidelines in connection with policies, including factors affecting recovery in circumstances similar to, but obviously not identical to, the ones which will arise in connection with the Department for Work and Pensions. The document draws attention to the position of common law as it will affect every government department. It does not, unsurprisingly, condescend to seek to provide detailed guidance to individual departments, which so far as necessary will be provided by various provisions and regulations; for this department, the Regulations under the principal Act. It does contain guidance, under the heading "Hardship", which it is material to set out:

One can see here the makings of the specific policy which this particular department has evolved. The guidance is contained in an Overpayment Recovery Guide dated June 2000. Under the heading "Waiver", the document points out:

The document then goes on to point out that any overpayment from a recipient of benefit would normally cause some level of hardship, so the grounds for waiver would need to include something more than that. It continues:

There is a section entitled "Evidence", which points out that where hardship is claimed, there should be a full breakdown of the family income and expenditure, although figures provided by a debtor would normally be accepted at face value.

Next I turn to the specific document to which Mr De Mello addressed his submissions, a document headed "Policy and Briefings" dated 18th January 2002. This is a department document in connection with this particular case, namely this claimant's case. In paragraph 2 it states:

The document then refers to "information providing services", it being the intention that it should be part of the policy that recipients of benefit should be informed by information leaflets and otherwise of (a) their obligation to make a decision where circumstances require a change in a claim for entitlement to be made, and (b) for them to understand that in so doing they are advancing in accordance with the desired change in culture, namely moving themselves from a benefit culture to an earnings or employment culture where they will receive, so far as legislation and the rules and regulations permit, encouragement and support towards that track rather than the benefit track. Thus, the document states:

Thus it will be open to them to seek an alternative benefit or means of support according to their circumstances, which will be known to them and will not be known to the department unless the department is informed of them. The document ends with this:

Mr De Mello attacks the policy in this way. Firstly, he submits that the distinction drawn between WFTC and other benefits, in particular income support, is irrational. Or, put another way, he submits that the basis for the policy which I have summarised is not a rational one. Secondly, he submits that there has been some measure of misinterpretation by the Secretary of State for Works and Pensions, or in any event by this department, in that they have drawn up a specific policy which has departed from, or at least extended beyond, that which was laid down in the Government Accounting 2000 document. In particular, in so far as it has developed its own concept of a discretion for waiver only being exercised in "exceptional circumstances" where there is nothing in the material to support that particular interpretation.

As to the first point, in my judgment the rationale for treating tax credits and WFTC as a distinct aspect of state support for those on benefit and those on limited incomes cannot be characterised as irrational. It may be, as Mr De Mello submits, that in respect of some people it will operate so as to discourage people moving from the benefit stream to the employment stream. That said, the observation cannot be sufficient to render irrational a policy which places weight upon the concept that there is an advantage in seeking to change the perception of recipients to enable them to see advantages in the longer term, even though they may be suffering financially in the short term, and to see that there is a way forward through employment, as opposed to remaining permanently the recipients of one or other form of benefit. It can be seen that regulation 13 bears out the distinction that if you are a recipient of cash from the state in the form of benefit, then as between those benefits, there will be offsetting. But if you have moved to employment, having been on benefit, twin principles come into play. It should be the responsibility of the individual who moves to employment to disclose that the situation has changed. Secondly, disclosure should be encouraged and the availability of WFTC can act as an incentive to disclosure. I can find no basis for categorising this approach as irrational.

The submission by reference to the general document, in my judgment, advances the position a little. It can be said, as Mr De Mello submitted, that the evidence, and in particular the evidence of Mr Lyons, may have been formulated upon the basis that somehow or other the general document is a governing document, but the essence of the matter is whether the policy which this department, influenced by the general document, has evolved or drawn up is unlawful or capable of challenge. It appears to the court that the department has to a large extent loyally reflected the contents of the general document, and has evolved and made more specific its policy judgment on the matters as they affect the department. As Mr Chamberlain submitted, it is impossible for it to be successfully submitted that the Department for Work and Pensions was not entitled to formulate its policy by having regard to a distinction which regulation 13 itself had expressly recognised.

I have concluded there is no force at all in any of the careful submissions which Mr De Mello has attempted to develop by way of a challenge to the policy. Nor do I see any basis for concluding that there has been a misinterpretation of the policy.

I turn, therefore, to ground 2; penalising the claimant. The short submission is that there are other penal sanctions which could have been adopted and brought into play, and the course which has been taken, namely determining that the whole amount of overpayment should be recovered, is penal. In my judgment, the fact that other courses could have been adopted, perhaps by way of prosecution for fraud, hardly supports the argument that what the Secretary of State has done can be categorised as penal. One might say that the course he has taken, in the face of what appears to the court to be a clear admission of fraud on the part of the claimant, has been to avert and withhold penal sanctions and consequences. He is entitled to recover the amount of the overpayment. The attack on the basis that he is acting as a coercive agent of the State, in my judgment, really reflects but another way of expressing Mr De Mello's fundamental submission, which is, put in its simplest terms, that he is acting oppressively and without taking account of hardship to this claimant. So far as it goes to hardship, I will come back to it. But I would observe that the momentum for the argument derives from a misconception as to the true legal position. As I have said, the recoverable amount is an overpayment to which this department of state is entitled. A notional entitlement to WFTC does not, as a matter of law, constitute a debt owed by the department to the claimant. At common law it can provide the claimant with no relief or defence at all. It should not be regarded, and it cannot be regarded, as an entitlement. That being its true character, the position falls to be determined in accordance with the discretion given to the Secretary of State to decide how far he considers it is just and fair in the circumstances to pursue its recovery.

The third head is windfall for the State. This, again, covers some of the ground I have already covered under the previous heading. The proposition is that, had the claimant made a claim for WFTC, she would have been entitled to receive £2,000 from, as it happens, the Inland Revenue, by way of tax credit. She has not received that sum because she did not claim it, and therefore the Treasury chest has not been reduced by that amount. Against that the Secretary of State is recovering the full amount she has obtained by way of overpayment without regard to the fact that it will be a windfall to the State. It is, in my judgment, turning the law on its head, for the reason I have given in the previous paragraph. Yet again, it really seems to me to be another way of seeking to advance the policy argument, which I have already rejected under the previous part of this judgment. The policy argument can be seen as directing and encouraging full recovery, and it is supported by regulation 13, which specifically envisages that no deduction will be made in respect of those benefits, other than the benefits which are stipulated. Further, one should not lose sight of the fact that government departments exist as independent departments. They have their own responsibilities, obligations and duties to perform, which are subject to accountability, but, more than that, are subject to budget. This is common knowledge. In my judgment, it misrepresents the structural position, as well as the law, to describe this as "a windfall to the State".

Now I come to hardship. The position taken by the Secretary of State is that any form of claim to recover an overpayment is likely to give rise to hardship. That seems to this court to recognise a reality. One is dealing with those who are at the lower end, if not the bottom, of the pay scale. We are concerned, though, with benefit. It will be people who are on benefit who are the recipients of an overpayment. It cannot be right that just because they are the recipients of benefit and are in receipt of an overpayment, they can escape the requirement to make repayment. For the proper and effective maintenance of a benefit system which requires rules to be followed and obligations and duties to be discharged, there must be recognised consequences which can follow in the event that people secure more than they are entitled to from the system. That is not just because of the existence of the legal obligations owed to the State, but because of what one might regard as wider fairness and justice to the population who supply the public funds to fund the benefit.

It is inevitably a sensitive area for the operation of discretion. In this particular instance the Secretary of State has been provided with details of the precise financial position of the claimant. They have been weighed. That is what this legislation and this particular part of the legislation requires of the Secretary of State and his department. It is not for this court, unless it is satisfied that there has been an unlawful exercise of discretion, to form a view about the financial margins with which this case, or any case, might give rise to.

In so far as the financial position has been considered in detail, it has also been made plain on more than one occasion that the question of waiver or abatement is always open to review, and that due regard will always be given to the circumstances of this claimant. That, I have no doubt, applies in relation to all those in the claimant's position. I have been informed that not only is that the position as it appears from the documents and from the decision letters, but it is obvious that it is always open to the claimant to seek a review if any circumstances arise in which she considers, or is advised, that there may be merit in doing so. The court has been informed that as a matter of policy it has been established that in any event there will be a review as a matter of practice and course every 12 months.

Thus, so far as Mr De Mello submitted that there had been insufficient attention paid to this claimant and to her child, it seems to me the challenge must fail because the material discloses that the detail had been given and responded to.

What, then, of another point that he has made: namely, the length of time which repayment will take. Of all the matters which have been raised, this aspect, merely from the bare facts which I set out at the beginning of this judgment, seemed to disclose a potentially unsatisfactory state of affairs. We are all familiar enough with the considerations which have to be given to those who are before the criminal courts and suffer financial penalties. For the need for consideration to be given to the undesirability of imposing a long period of time for repayment, it being a generally established principle in the criminal jurisdiction that, if there is to be a repayment schedule, it should not extend beyond three years. As Mr De Mello stated in reply, a long period of time to repay can become "an albatross around the neck of the debtor". In my judgment, it may in certain cases be a matter to which specific consideration will have to be given. But all I am concerned with in this case is whether, on the bare figures that I have, namely on the current estimate of £2.70 a week, there is a ground for concluding that insufficient attention was paid to this factor by the Secretary of State, and that his decision should be struck down on that score. I should make it plain that the position under the Regulations, and in particular regulation 16, is that there are limitations on deductions from prescribed benefits which Parliament has considered, and regulation 16(4)(b) does set a limit:

On the figures in this case, that would have permitted a figure of £8.10 to have been applied to the claimant, which would have led to a recovery period of 7.5 years being the governing period, subject to no alteration. But Mr Chamberlain by his submissions goes further and makes some general submissions. He submits that the court should not forget that a decision to waive an overpayment, once made, cannot be altered. Thus, he submits, certainly at the initial stage, as here, the court should be slow to categorise a decision not to waive as unfair, taken as it is in the present circumstances. It should not be regarded as susceptible of unfairness or pressure or irrationality by reason of a calculation on the present figures, because the passage of time is important. Time can ameliorate the position and give rise to other circumstances. A decision to waive is a hard and fast decision, made once and for all, but a decision not to waive is the very opposite. It is a decision which can always be reviewed and is not hard and fast, and can take account of changing circumstances. Thus, he submits, one should not look at the period of 23 years. One should look to a recovery schedule, subject to review, which can always take account of changed circumstances or the concept of oppression.

Thus, he submits, as a matter of generality, that the present state of affairs is not necessarily the one which the court should conclude is inevitably going to continue for anything like 23 years. For any number of reasons the financial position of the claimant might alter.

In my judgment, those submissions do sufficiently answer the disquiet which the bare statistical facts disclosed, and dispel any sense of reservation that this court has about the exercise of discretion in this case. For all those reasons, this application for judicial review fails.

MR CHAMBERLAIN: I simply ask for the usual public funding of the costs order.

MR JUSTICE NEWMAN: Do you want a detailed assessment?

MR DE MELLO: Yes, if I could have such an order.

MR JUSTICE NEWMAN: Thank you very much indeed.