SUPREME COURT DECIDES TEST CASE

SUPREME COURT DECIDES TEST CASES

Secretary of State for Work and Pensions v. Payne & Another [2011] UKSC 60

The Supreme Court has now decided that the Secretary of State for Work and Pensions has no power to make deductions from current benefit payments in order to recover overpayments of benefits or Social Fund loans, where the overpayment or loan debt is specified in a Debt Relief Order.  In addition, the Supreme Court has overruled previous authorities which applied in the law of bankruptcy.  The position now is that there is no power to make deductions from on-going benefit entitlements after a person is declared bankrupt.

The Respondents brought their judicial review claims as test cases, challenging the lawfulness of deductions made by the Secretary of State under sections 71 and 78 of the Social Security Administration Act 1992 so as to recover overpayments of social security benefits and Social Fund loans.  The Respondents argued that, once a person obtains a debt relief order (DRO) under part 7A of the Insolvency Act 1986 specifying a social security debt as a debt covered by the DRO, the Secretary of State has no power to recover an overpayment of benefit or Social Fund loan paid to the debtor.

In the High Court, Cranston J allowed the claims.  The Court of Appeal dismissed the Secretary of State's appeal by a majority.  The Secretary of State appealed to the Supreme Court which unanimously dismissed the appeal.  The Supreme Court also went further, in deciding to overrule a 1996 decision of the High Court, to the effect that the statutory powers of deduction were not affected by a benefits recipient's bankruptcy.  Accordingly, the Supreme Court has now clarified the law as it applies both to DROs and bankruptcy, such that in both cases, the statutory powers of deduction will not normally be exercisable.

The Supreme Court's decision has significant consequences not only for the Department for Work and Pensions but also for other government departments which rely on similar statutory powers in order to reclaim overpayments of money.  In addition, the decision has great significance for local authorities and the system of housing benefit.  The law on recovery of overpayment of housing benefit is in the same terms as s.71 of the 1992 Act.  On one recent estimate, it is possible that more than £20m of overpaid housing benefit cannot now be recovered.

It is very likely that, following the Supreme Court's decision, both the social security legislation and the bankruptcy legislation will have to be amended in order to protect public funds from the implications of the decision.

Denis Edwards acted as junior counsel for the Secretary of State for Work and Pensions in both the Supreme Court and in the Court of Appeal, having acted for the Secretary of State at first instance before Cranston J.