1 day ago
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A government watchdog has criticised ministers for understating the impact on the poorest of plans to directly deduct benefit overpayments from people’s bank accounts.
The Department for Work and Pensions (DWP) is legislating to require banks to withdraw cash from the accounts of claimants who have been overpaid due to fraud or error.
Banks will be able to charge claimants for “reasonable” administration costs prior to making deductions. The government is yet to specify the value of the charges.
After a review of the public authorities (fraud, error and recovery) bill, the Regulatory Policy Committee, an independent legislative watchdog, has said the impact on the most vulnerable has been understated in an impact assessment of the bill.
“The statement does not sufficiently take into consideration the potential impact on the poorest members of society of reclaiming overpayments due to error,” the committee said.
The committee has also raised a lack of transparency about the costs that banks will charge claimants for making the state-ordered deductions.
“The department does not quantify any cost to banks for facilitating deductions directly from individuals’ bank accounts as they will be recovered from debtors,” the committee said. “However, for transparency, the [impact assessment] could set out the scale of the admin costs to be recovered.”
Liz Kendall, the welfare secretary, has said the use of “direct deduction orders” allowing the recovery of funds from claimants could save the taxpayer £500m a year once fully rolled out.
For the last financial year, 2023-24, the DWP estimates that benefit overpayments due to fraud or error by claimants totalled £9.7bn.
The DWP can already recover benefits debt through the welfare system or by deducting money from claimants who are employees via the PAYE system.
The new powers have prompted warnings from organisations such as Citizens Advice that they will have the greatest effect on people in the most vulnerable circumstances.
The banking industry has raised concerns about other powers in the bill that could lead to them being forced to hand over account information of claimants in cases where there are indications they may have been paid benefits incorrectly.
The legislation is seen to potentially clash with the obligations of banks under a Financial Conduct Authority (FCA) consumer duty to protect customers who are vulnerable due to their financial situation.
The 2023-24 DWP annual report and accounts revealed that 76% of those whose claims were flagged for possible discrepancies were found to have no fraud or error in their claim.
The government has said direct recoveries from claimants accounts will happen only once “affordability and vulnerability checks” have been carried out, including through the debtor’s bank statements
Jasleen Chaggar, a legal and policy officer at the campaign group Big Brother Watch, said: “Navigating the welfare system is a bureaucratic nightmare and innocent people can be left owing money to the DWP through oversight or error.
“We should not be giving the government powers to go behind our backs and pilfer through our bank accounts, especially when the purpose is not just to tackle serious fraud but to correct accounting errors.
“The chilling powers to secretly request three months of bank statements from a welfare recipient’s bank to decide whether they can afford to have the funds removed are paternalistic and nothing short of dystopian. Decisions about whether to seize funds directly from bank accounts should be made by courts, not unaccountable officials in Whitehall.”
The DWP has been contacted for comment.
