QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| THE QUEEN on the application of THE LONDON BOROUGH OF LAMBETH
|- and -
|THE SECRETARY OF STATE FOR WORK AND PENSIONS
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Tim Kerr QC and Clive Sheldon (instructed by the Solicitor to the Department for Work and Pensions) for the Defendant
Crown Copyright ©
Mr Justice Stanley Burnton:
The legislative framework: (a) under the 1992 legislation as originally enacted.
137. — (1) Subsidy under section 135 above shall not be payable to an authority until either—
(a) they have made a claim for it in such form as the Secretary of State may determine; or
(b) if they have not made such a claim, the amount of subsidy payable to them (apart from subsection (6) below) has been estimated under subsection (3) below.
(2) The Secretary of State may withhold from an authority so much of any subsidy under section 135 above as he thinks fit until either—
(a) the authority has supplied him with prescribed particulars relating to their claim for subsidy and complied with prescribed conditions as to records, certificates, audit or otherwise; or
(b) he is satisfied that there is a good reason for the authority's failure to supply those particulars or comply with those conditions.
(3) If an authority has not—
(a) made a claim for subsidy;
(b) supplied the prescribed particulars referred to in paragraph (a) of subsection (2) above; or
(c) complied with the prescribed conditions referred to in that paragraph,
within the prescribed period, then the Secretary of State may estimate the amount of subsidy payable to them (apart from subsection (6) below) and employ for that purpose such criteria as he considers relevant.
(6) Where the amount of subsidy paid to an authority for any year is found to be incorrect, the amount payable to them for any subsequent year may be adjusted for the purpose of rectifying that mistake in whole or in part.
As will be seen, subsection (6) is the crucial subsection in the present context.
The legislative framework: (b) as amended by the Housing Act 1996
(1) Subsidy shall be paid by the Secretary of State in such instalments, at such times, in such manner and subject to such conditions as to claims, records, certificates, audit or otherwise as may be provided by order of the Secretary of State.
(3) Where subsidy has been paid to an authority and it appears to the Secretary of State –
(a) that subsidy has been overpaid; or
(b) that there has been a breach of any conditions specified in an order under this section,
he may recover from the authority the whole or such part of the payment as he may determine.
Without prejudice to other methods of recovery, a sum recoverable under this subsection may be recovered by withholding or reducing subsidy.
The facts and other legal developments
8. The legal consequence is that the Department finds itself in a position in which it accepts that it cannot say that the decision would inevitably have been the same without regard to past practice. The Department is therefore on the wrong side of the test in Simplex G. E. (Holdings) Ltd v Secretary of State for the Environment (1988) 3 PLR 35 and accepts that the decisions in respect of the two Councils should be quashed.
The wider questions of principle
9. The Department has decided that it wishes to use the occasion of reconsidering the question of recoupment in relation to the two Councils to review the policy which should be applied with respect to recoupment under s140C in outstanding and future cases. In doing so, it proposes to review and take account of the comments made by the learned Judge at the previous hearing.
10. For the avoidance of doubt, the Department makes no concession that there has been any error of law in previous cases.
3. Outstanding qualified subsidy claims
3.1 In view of the decision to undertake a review of the policy on recovery of overpaid subsidy there will be a delay in clearing outstanding qualifications and making decisions on recovery until the review has been completed. This includes a number of outstanding qualified claims and overpayments from 97/98 and 98/99 as well as qualifications arising on 99/00 claims. The Department will write separately to authorities affected. In the meantime the Department will continue to ask authorities to carry out further work, where appropriate, in order to substantiate their claim, and may, where appropriate, withhold subsidy pending completion of the further work.
The degree of impact on the public purse, for example, where the case has not been referred to the Rent Officer we would have regard to the movements in rent levels since the date referral should have occurred.
In addition, the Department undertook to consider circumstances additional to those referred to in the specified criteria which authorities might wish to put forward. In effect, the Department accepted that the decision as to recovery should depend on the circumstances of individual case.
6. There are a significant number of local authorities that, on the basis of the outstanding qualified claims, have been overpaid subsidy. The first step has been to establish the extent of such overpayments and consequently, the Department has been in contact with those authorities to seek quantification of the sums involved. Over the coming weeks, we will, where necessary, be contacting further those authorities where we need specific additional information to enable decisions about whether, and if so how much, to recover. ….
7. After careful consideration of all the relevant facts the decision will be made and authorities will be informed of the outcome. Where the Secretary of State decides that it is appropriate to seek recovery of all, or part, of the overpayment, we will write to authorities giving details of the amount and reasons for the decision. Authorities will be given an opportunity and adequate time to respond. The Department will consider the financial circumstances, having particular regard of (sic) each authority's financial commitment and size of the recovery in setting an appropriate time scale for repayment.
It is plain that the amount which has already been recovered from the Council to date far exceeds the level of recovery which the Secretary of State would (on any analysis) now consider appropriate in the light of his published approach to the recovery of overpaid housing benefit subsidy.
Accordingly, there can be no justification whatsoever for continuing to recover £3.3 million a year from the Council.
Thus the recovery of £13.5 million from the Council in the context of a maximum estimated loss to the public purse of £1.8 million is a starkly disproportionate penalty.
…. As at 31 July 2003, the position is that the Council will have paid £22,609,200 of the £31.5 million. On any view, this figure far exceeds any loss to the public purse.
This level of recovery is entirely inconsistent with the Secretary of State's current declared policy in respect of housing benefit subsidy overpayments. …
The letter asserted that the Secretary of State had made a number of decisions regarding recovery from other authorities under the approach set out in his Circular, and that the maximum recovery rate imposed had been 20 per cent. It invited the Secretary of State to agree to stop recovery of the £3.3 million per year immediately, and to reimburse to it the sum which it had paid in excess of what was an appropriate level of recovery of overpayment, which was quantified at either £13,159,200 or £10,007,200.
I recognise the efforts Lambeth has made in trying to resolve its financial problems, but I have concluded after careful consideration, that Lambeth's current financial situation is no worse than when the original decision was taken in 1997. To cease recovery of the overpaid subsidy would have the effect of reopening and changing the original recovery decision, requiring a change of policy on which the original decision was based. This might lead to pressure from other LAs to have their cases re-opened and refusal to do so could lead to a significant risk of legal challenge. As with policy changes in general, applying this change retrospectively would be untenable. The introduction of a revised approach to recovery decisions from 2002 does not justify any change to the earlier Lambeth decision.
The Secretary of State having fully considered your request and the supporting financial information provided has concluded, however, that it would be inappropriate to reverse the policy set out in Circular HB/CTB S1/2002, and apply the criteria to a decision that had been made under previous legislation, and to a decision that was not "outstanding" at the time that the policy was introduced but had actually been made and applied several years previously.
The Secretary of State confirms that Lambeth's financial position and what you call "the precedent effect on other local authorities" did form part of his reasoning in refusing your request even though they were not expressly referred to in the letter of 8 April 2004. The "precedent effect" was a strong reason for the Secretary of State not to depart from published policy, and not to reverse or vary a decision taken many years ago, in the absence of "exceptional" circumstances. The fact that the Council's present financial situation is no worse than when the original decision was taken in 1997 was one of the factors taken into account in determining that Lambeth's circumstances were not "exceptional".
Following this letter, recovery of sums outstanding under the 1998 decision resumed.
The grounds for judicial review
(1) It is perverse and disproportionate to continue to recover the outstanding sum, given that recovery has already been made of sums that far exceed the loss to the public purse and the amount which the Secretary of State would seek to recover under his present policy. Under this head, the separate point is made that the continued recovery from Lambeth "will penalise current council tax payers and service recipients who have little or nothing to do with the errors which gave rise to the overpayments".
(2) The Secretary of State failed to differentiate between decisions which had been taken (under his original policy of full recovery) and fully implemented and a decision which had not been fully implemented, under which a further £9 million remained outstanding.
(3) The Secretary of State's reliance on the precedent effect of revisiting the 1998 decision (i.e., his concern that for him to accede to Lambeth's request would lead to other local authorities making claims) was flawed, since no other local authority was in the comparable position of having such large sums outstanding as Lambeth has.
(4) The reasons given by the Secretary of State for the 2004 decision are inadequate.
(5) The Secretary of State erred in considering that the discretion conferred by section 137(6) differed from that conferred by section 140C.
No challenge is made in these proceedings in respect of (the sum of some £22.5 million) which has already been recovered by the Secretary of State from the Claimant. However, the Claimant specifically reserves its position in relation to any claim that it may have in restitution in respect of this sum as a result of any declaration made as result of these proceedings … or otherwise.
(a) Ground 1: perversity in continuing recovery
(b) Ground 2: irrationality in treating Lambeth as on a par with other authorities that had completed repayment of their overpayments
(c) Ground 3: reliance on precedent effect
Ground 5: error in considering that the discretion under section 140C differs from that under section 137(6)