A government watchdog has raised concerns over the potential negative impact of plans to directly withdraw benefit overpayments from the bank accounts of claimants.
The Regulatory Policy Committee (RPC), an independent legislative body, has criticized ministers for underestimating how these measures will affect the most vulnerable members of society.
Direct Deductions from Bank Accounts
The Department for Work and Pensions (DWP) is moving forward with legislation that would enable banks to deduct overpaid benefits directly from claimants’ accounts when the overpayments result from fraud or errors.
However, these deductions will be accompanied by “reasonable” administration fees, which the government has yet to specify.
Despite the government’s plan, the RPC has noted that the impact assessment does not fully consider how these deductions could disproportionately affect the poorest individuals.
The committee emphasized that the potential harm to vulnerable claimants has not been adequately addressed in the assessment.
Lack of Transparency in Charges
The RPC has also expressed concern about the lack of transparency surrounding the bank charges associated with these deductions.
It pointed out that while the government has not disclosed how much banks will charge for facilitating the deductions, it would be helpful to outline the administration costs to be recovered from the claimants. This would allow for greater transparency regarding the financial implications of the new policy.
| Issue | Details |
|---|---|
| Direct Deductions | Deductions made from bank accounts for overpayments caused by fraud or error. |
| Administration Charges | Banks can charge for “reasonable” costs; amount yet to be specified. |
| Impact on Vulnerable | Watchdog criticizes the government for understating the impact on the poorest claimants. |
| Transparency Issues | Concerns over the lack of clarity regarding fees charged by banks. |
Financial Savings and Benefits
Welfare Secretary Liz Kendall has stated that the use of direct deduction orders could save taxpayers £500 million annually once the system is fully operational.
According to estimates from the DWP, overpayments totaling £9.7 billion were made due to fraud or error in the 2023-24 financial year. These deductions will not only target overpayments caused by fraud but also errors, which could affect innocent claimants.
The DWP has the authority to recover benefits debt through the welfare system or by deducting money from employees via the PAYE system.
The new legislation gives the government additional powers to collect debts by deducting from claimants’ bank accounts, even when they are no longer receiving benefits.
Concerns from Citizens Advice and the Banking Industry
Citizens Advice has raised alarms, warning that the proposed deductions will have the most significant impact on those in the most vulnerable situations.
These concerns have been echoed by the banking industry, which has also expressed worry over other aspects of the bill. One major issue is the potential requirement for banks to provide account information of claimants, particularly when there are signs that benefits may have been overpaid.
The new bill is seen as potentially conflicting with the Financial Conduct Authority (FCA)‘s consumer duty to protect vulnerable customers. This situation could place banks in a difficult position as they balance the obligations to their customers with the government’s legal requirements.
Welfare System Failures
The 2023-24 DWP annual report revealed that 76% of claimants whose accounts were flagged for discrepancies were found to have no fraud or error in their claims. This highlights the need for caution and accuracy when identifying claimants for direct deduction.
Legal Concerns Over Paternalistic Measures
Campaign groups, such as Big Brother Watch, have strongly criticized the new powers. Jasleen Chaggar, a legal and policy officer at Big Brother Watch, expressed concern over the government’s ability to access welfare recipients’ bank statements without their explicit consent.
She argued that these powers are too paternalistic and that such decisions should be made by courts rather than government officials.
Safeguards for Vulnerable Customers
A spokesperson from the DWP has responded, stating that the bill includes safeguards to protect vulnerable individuals.
The spokesperson explained that the powers are specifically aimed at debtors who are no longer receiving benefits but have the means to repay their debts but have failed to do so repeatedly.
The government’s proposal to recover benefit overpayments directly from claimants’ bank accounts has sparked concerns from multiple sectors, including the Regulatory Policy Committee, welfare organizations, and the banking industry.
While the government argues that the policy could save taxpayers significant amounts, critics point out that vulnerable individuals will bear the brunt of the negative effects. It remains to be seen how the government will address the transparency issues and the concerns raised by these stakeholders.
FAQs
What is the purpose of the direct deduction orders?
The direct deduction orders are designed to recover overpaid benefits from claimants’ bank accounts due to fraud or errors.
How much could the government save through this policy?
The government estimates that £500 million could be saved annually once the system is fully implemented.
What concerns have been raised by watchdogs and organizations?
Concerns include the lack of transparency regarding bank charges and the potential negative impact on vulnerable claimants.