UK Social Security and Child Support Commissioners' Decisions

[2006] UKSSCSC CH_858_2006 (26 September 2006)

DECISION OF THE SOCIAL SECURITY COMMISSIONER
1. My decision is given under paragraph 8(4) and (5)(b) of Schedule 7 to the Child Support, Pensions and Social Security Act 2000:

I SET ASIDE the decision of the Fox Court appeal tribunal, held on 9 November 2005 under reference U/42/242/2005/08291, because it is erroneous in point of law.

I make findings of fact and give the decision appropriate in the light of them.

I FIND (i) that the local authority did not make an official error in respect of the increase in the claimant's earnings and (ii) the facts set out in paragraphs 24 to 29.

My DECISION is to confirm the decision of the local authority, except that the overpayment is not recoverable in so far as it relates to the payment of tax credits.

The issue

2. This appeal concerns the recoverability of an overpayment of housing benefit. The claimant was overpaid housing benefit as her award was not amended to take account of (i) the payment of tax credits and (ii) an increase in her earnings. The issue is whether either or both of those overpayments is recoverable from the claimant.

The oral hearing

3. I held an oral hearing of this appeal on 18 September 2006 at the Commissioners' court in London. The claimant attended with her husband and was represented by Mr Rod Cloquhoun of Cambridge House Law Centre. The local authority was represented by Ms Pauline Jackson. And the Secretary of State was represented by Mr Leo Scoon, from the Office of the Solicitor to the Department for Work and Pensions; he was accompanied by Ms Julia Thomas. I am grateful to all who attended for their contributions.

How the issues arise

4. The claimant came to this country from the Netherlands in 2004. She did not claim housing benefit immediately, but she struggled to manage financially and eventually made a claim in September 2004. She was awarded housing benefit. There is no copy of the letter to the claimant notifying her of the award that was made. Ms Jackson told me at the oral hearing that the local authority's computer system could not produce a copy. The tribunal was given the screen prints showing the entitlement calculations.
5. On 11 March 2005, Her Majesty's Revenue and Customs notified the claimant of her award of tax credits for the period from 11 August 2004 to 5 April 2005. The letter of notification also set out the payments that would be made in the 2005-2006 financial year, provided that there was no change in her circumstances. The claimant gave this letter to the local authority on 17 March 2005.
6. On 19 April 2005, the claimant was visited by an officer of the local authority. She showed him payslips, which recorded an increase in her wages for February and March 2005. She had not previously reported this increase to the local authority.
7. On 22 April 2005, the claimant was sent a letter, which stated that her claim had been assessed and that from 4 April 2005 she was entitled to £134.98 a week. This letter did not take account of the payment of tax credits or of the increase in the claimant's wages. Ms Jackson explained that this was a computer-generated letter recording the effect of the annual uprating of benefits on the claimant's award as previously notified. However, that is not apparent from the terms of the letter. The calculations set out in the letter are important, because they give the claimant the structure of the calculation for her housing benefit:

"Amount the Government rules say you need each week ('applicable amount')

Personal Allowance for a couple, ages over 18 88.15

Children 2 @ 43.88 87.76

0 @ 43.88

Amount for family premium 16.10

Total applicable amount 192.01

"Money coming in

Earnings (tax, National Insurance and half of any pension
contributions you pay have been taken off) 189.89

Weekly amount ('assumed income') we take from £614
capital 0.00

Anything else 28.40

Less income we ignore ('disregarded income') 28.40

Income we have used to work out your benefit (including
your partner's) 193.79

"Housing costs

Your rent – weekly 147.77

Less an amount for heating 6.91

Less an amount in your rent not allowable for benefit 4.72

Rent we have used to work out your benefit ('eligible rent') 136.14

You pay 12.79"

8. The local authority did not take account of the changes in the claimant's circumstances until 13 May 2005. As a result of the recalculation of the claimant's entitlement, an overpayment arose for the inclusive period 14 March 2005 to 15 May 2005. The local authority decided that both overpayments were recoverable from the claimant. She was notified on 26 May 2005.
9. The claimant exercised her right of appeal. The tribunal allowed the appeal in part. It decided that the overpayment was recoverable in so far as it related to the award of tax credits, but not recoverable in so far as it related to the increase in wages. The reason for the tribunal's decision was that the claimant could not reasonably have been expected to realise that the letter of 22 April did not set out her correct earnings, but could reasonably have realised that the tax credits had not been taken into account as they were not mentioned.
10. I gave the claimant leave to appeal to a Commissioner. When the parties had made their observations, I invited the Secretary of State to join the proceedings and directed an oral hearing.

The legislation

11. The recovery of overpayments is governed by section 75 of the Social Security Administration Act 1992:

'(1) Except where regulations otherwise provide, any amount of housing benefit determined in accordance with regulations to have been paid in excess of entitlement may be recovered either by the Secretary of State or by the authority which paid the benefit.

'(2) Regulations may require such an authority to recover such an amount in such circumstances as may be prescribed.'

12. The regulations made under that authority were originally contained in the Housing Benefit (General) Regulations 1987, which have now been consolidated in the Housing Benefit Regulations 2006. I will follow the practice of the parties in this case and refer to the numbering from the 1987 Regulations.
13. 'Overpayment' is defined by regulation 98:

'"overpayment" means any amount which has been paid by way of housing benefit and to which there was no entitlement under these Regulations (whether on the initial decision as subsequently revised or further revised) and includes any amount paid on account under regulation 93 (payment on account of a rent allowance) which is in excess of the entitlement to housing benefit as subsequently decided.'

14. The circumstances in which an overpayment is recoverable are prescribed by regulation 99:

'(1) Any overpayment, except one to which paragraph (2) applies, shall be recoverable.

'(2) Subject to paragraph (4) this paragraph applies to an overpayment caused by official error where the claimant or a person acting on his behalf or any other person to whom 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.

'(3) In paragraph (2), "overpayment caused by official error" means an overpayment caused by a mistake made whether in the form of an act or omission by-

(a) the relevant authority;

(b) an officer or person acting for that authority;

(c) an officer of-

(i) the Department for Work and Pensions; or

(ii) Revenue and Customs

acting as such; or

(d) a person providing services to the Department for Work and Pensions or to the Commissioners for Her Majesty's Revenue and Customs,

where the claimant, a person acting on his behalf or any other person to whom the payment is made, did not cause or materially contribute to that mistake, act or omission.

'(4) Where in consequence of an official error, a person has been awarded a rent rebate to which he was not entitled or which exceeded the benefit to which he was entitled, upon the award being revised any overpayment of benefit, which remains credited to him by the relevant authority in respect of a period after the date on which the revision took place, shall be recoverable.'

What the parties wanted

15. The parties each argued that the tribunal went wrong in law and each invited me to give a different decision.
16. Mr Scoon argued that the whole of the overpayment was recoverable in so far as it related to earnings, because there had been no official error. He argued that there had been an official error in respect of the tax credits, but that the claimant could not reasonably have been expected to realise until she received the letter of 22 April. Accordingly, that part of the overpayment was recoverable only from that date.
17. Mr Colquhoun argued that no part of the overpayment was recoverable, as the local authority had made an official error and that the claimant could not reasonably have been expected to realise that this had occurred.
18. Ms Jackson argued that the local authority had not made an official error in respect of the claimant's earnings, so that the whole of the overpayment relating to those earnings was recoverable. She accepted that there had been an official error in respect of the tax credits, but argued that the claimant should have expected her housing benefit to reduce once they were awarded. Alternatively, she argued that the overpayment the claimant should have realised from receipt of the letter of 22 April that they had been overlooked.

The earnings

19. The legislation that I have set out is complicated. The first issue is whether the local authority made an official error in respect of the evidence of earnings. If it did not, the overpayment is recoverable. The tribunal went wrong in law by assuming that there had been an official error. Its reasoning was only relevant if there had been such an error. That mistake by the tribunal leaves me free to substitute a decision on all issues arising in this case.
20. The local authority was not aware of the increase in the claimant's earnings until she mentioned it at the visit on 19 April; it took it into account on 13 May. That was less than a month later. Delay can be an official error. However, Ms Jackson argued that the local authority had taken a reasonable time to amend the claimant's award. I accept that submission. I note that a decision on a claim must be made within 14 days or as soon as reasonably practicable thereafter: regulation 76(3) of the Housing Benefit (General) Regulations 1987. There is no provision for decisions on supersession. Perhaps more leeway is appropriate once an award has been made than on an initial claim. But even applying the standard in regulation 76(3), I consider that the local authority acted sufficiently promptly to avoid an official error.
21. The claimant disclosed her increased earnings on 19 April and received a letter from the local authority on 22 April. It was reasonable for her to expect that it would take account of the increase. Mr Colquhoun argued that she could not reasonably have realised that the increase had not been taken into account and the tribunal came to that conclusion. However, this issue does not arise unless the local authority made an official error. If the local authority did not make an official error, and I have decided that it did not, the overpayment is recoverable, regardless of whether or not the claimant could reasonably have been expected to realise that the increase in her wages had not been taken into account.
22. Mr Colquhoun did not identify any basis on which there could be official error in respect of the earnings. He made a number of pertinent points about what the claimant knew or could deduce from the letter of 22 April. But those points do not arise unless there was an official error.

The tax credits

23. I accept that there was an official error in respect of the tax credits. Everyone was agreed on this at the oral hearing. This is not just a question of the length of time between the disclosure by the claimant and the local authority decision taking it into account. The delay did not occur just because an officer of the local authority had not yet had time to get round to dealing with it. With the benefit of hindsight we know that the local authority simply forgot or overlooked this change of circumstances.
24. I also accept the argument of Mr Scoon and Mr Colquhoun that the claimant could not reasonably be expected to realise that she was being overpaid initially. This was her first claim for housing benefit and her first experience of tax credits. She had been in Great Britain for less than a year and had no experience of our benefit or tax credit systems. She had tried to find out how the system worked, but had not got clear answers. The information she was given was inevitably fairly general in its terms and could not cover every detail. She knew that she had to disclose the award of tax credits, but she did not understand its significance. It was certainly reasonable to expect her to realise that the tax credits might affect the amount of her housing benefit, but that is not enough. The issue is whether she would reasonably have been expected to realise that it did. I find that she could not.
25. Once the claimant received the letter of 22 April, she could reasonably have been expected to realise that it had not yet been taken into account. The structure of the letter shows that the award of housing benefit took account of earnings, assumed income, anything else and disregarded income. That final category shows that income that the claimant had but which was not taken into account would be listed. She could reasonably have realised from a careful reading of the letter that the local authority had not taken the tax credit into account. It was not included under 'anything else', which obviously covered all income that was not earnings or assumed. Nor was it included under disregarded. It followed that the local authority had not taken it into account.
26. However, that is not sufficient for the local authority to recover the overpayment. It is not enough that the claimant could have realised that the tax credits had not yet been taken into account. The overpayment is only recoverable if the claimant could reasonably be expected to realise that the tax credits should have affected the amount of her award. She could not deduce that from the form of the letter, because she could not know whether the tax credits would be disregarded. Could she reasonably have known from other information available to her?
27. I will begin with what she actually knew and then come to what she could reasonably be expected to realise.
28. She knew that the tax credits were relevant, because she had been told to report them. She knew that they would be taken into account and tried to find out how. Why else would the local authority need to know about them if they were not relevant in some way? What she did not know was how that would be done. In particular, she did not know whether they would be taken into account immediately. She understood how the benefit and tax credits system worked in the Netherlands and she tried to find out how they worked in Great Britain, but failed to obtain the necessary detailed information.
29. Now I come to the key issue: although she did not actually know, could she reasonably be expected to realise? The test is an objective one: 'reasonably have been expected to realise. But it has to be applied to 'the claimant'. I must, therefore, consider whether this particular claimant could reasonably have been expected to realise. That involves taking account of her particular experience of the housing benefit scheme and of her knowledge. The fact that, despite understanding what she needed to know, she was not able to obtain the relevant information, is not decisive. But it is a relevant fact that I am entitled to take into account as evidence of what she could reasonably be expected to realise. Apart from that, it is relevant that the claimant had only recently come to this country and, therefore, lacked even any general background knowledge of our tax credit and benefit schemes. This was her first claim, so she had no previous knowledge of the housing benefit scheme. She lacked the experience of previous awards to know that tax credits were taken into account immediately and not, as in the Netherlands, retrospectively only. It is also relevant that the information she was given did not, despite her questions, convey to her the effect of tax credits as opposed to the fact that they were relevant in some way. I was told that there is a website at which claimants can enter their details and be shown their entitlement to housing benefit. The claimant was not aware of and was not directed to that site. I do not consider that it was reasonable to expect her to search for such a site in order to understand how housing benefit is calculated. In the circumstances of this case, I do not consider that the claimant could reasonably have been expected to realise that she was being overpaid as a result of reading the letter of 22 April or on the basis of other information available to her.

Can the overpayment be split between earnings and tax credits?

30. On my reasoning, the overpayment is recoverable in so far as it relates to the increase in earnings, but not in so far as it relates to the tax credits. Is it possible to split the overpayment between those different elements of entitlement?
31. The answer in the circumstances of this case is: yes. As Ms Jackson pointed out, the legislation draws a distinction between overpayments that are caused by official error and those that are not. The latter are recoverable, whereas the former may be recoverable depending on what the claimant could reasonably be expected to realise. I have found that there was no official error with regards to the earnings but there was an official error with regards to the tax credits. The legislation expressly requires that they be treated differently.
32. But can an overpayment caused by official error be split so that part of it is recoverable and part of it is not recoverable? That was the issue I raised in my direction for the oral hearing. It would arise if the claimant could reasonably have been expected to realise that one factor affected entitlement but not that another did. On my findings, that issue no longer arises. However, I heard argument on it and will give my view.
33. The Secretary of State's written observations argued that there was no authority to support splitting an overpayment caused by official error, but it was standard practice to do so and that was fair. Mr Scoon repeated that there was no authority on the point, but relied on fairness and common sense to support the possibility. I did not find a general appeal to fairness and common sense helpful in interpreting the legislation.
34. There are two respects in which an overpayment may undoubtedly be split so that part is recoverable and part not. I have already referred to the distinction drawn in regulation 99 between overpayments that were caused by official error and those that were not. As I have said, I accept the point made by Ms Jackson on this distinction. The legislation also requires, when appropriate, that an overpayment is split by reference to time. The focus of attention under regulation 99(2) is on the time of 'the payment' or notice of the payment. That requires an individual consideration for each payment or notice. And that inevitably requires the overpayment to be split by reference to time if different considerations applied at different times so that the claimant could reasonably have been expected to realise that an overpayment was being made for part of the time but not for the remainder.
35. A general factor in favour of allowing an overpayment caused by official error to be recoverable in part only is this. Assume that a local authority discovers one cause of overpayment and supersedes the decision awarding benefit, creating an overpayment. Some months later, it discovers another cause of overpayment and again supersedes the decision awarding benefit, creating a further overpayment. In those circumstances, the overpayments would be treated separately with the possibility that regulation 99(2) might apply differently to each. Should the position be different if both overpayments are dealt with together in a single decision? It would be inappropriate if the time at which overpayment decisions were made affected the rights and obligations of the claimant and the local authority.
36. Given the two ways in which an overpayment can be split for recovery and the possibility of this split being achieved by separate decisions, it would not be surprising if the legislation allowed an overpayment to be split for recovery purposes between different elements of entitlement. However, it is not easy to extract this result from the wording of the legislation.
37. Regulation 99 defines an overpayment as 'any amount which has been paid by way of housing benefit and to which there is no entitlement'. The word used is 'any', not 'the'. The former is more flexible than the latter and is at least consistent with overpayments being treated differently according to the factor that has affected entitlement. That has to be so. If it were not, it would not be possible to treat overpayments differently according to whether or not they were caused by official error and by reference to time, both of which regulation 99 does. But what of splitting an overpayment between different factors affecting entitlement? Regulation 99(2) refers to 'an overpayment caused by official error'. It does not say 'the overpayment caused by official error'. If it did, it would be more difficult to justify dividing that overpayment according to different elements of entitlement. The issue under regulation 99(2) is whether the claimant could reasonably have been expected to realise that 'the payment' was 'an overpayment'. Does 'the payment' mean the whole of the amount that is paid at one time? If so and the claimant could have known that it was an overpayment in respect of one element of entitlement, then is that not fatal to the claimant relying on regulation 99(2) in respect of any element of entitlement, because the claimant could have realised that the payment was an overpayment? One way to avoid this is to interpret 'payment' as referring not to the whole of the payment, but to the part of a payment that is affected by a particular element of entitlement. Another possibility is to interpret the words 'was an overpayment' to mean that the payment was an overpayment in respect of a particular element of entitlement. Either of these interpretations involves some twisting of the language, but both have the advantage of avoiding a difference between splitting by reference to time and splitting by reference to elements of entitlement. I consider myself fortunate not to have to decide this issue and am content to express the hope that these thoughts may be helpful if the issue arises for decision in the future.

Disposal

38. I allow the appeal and substitute the decision set out in paragraph 1.

Signed on original on 26 September 2006

Edward Jacobs Commissioner