Summary: Miss X complained the Council wrongly made deductions from her housing benefit entitlement for a housing benefit overpayment when there was a formal agreement with creditors to pay her debts. There is no fault in the way the Council has sought to recover the debt from Miss X. If Miss X disputes the Council’s interpretation of the law and guidance it is open to her to seek her own legal advice. The Ombudsman cannot make a finding on a point of law.

The complaint

1. Miss X complained the Council has wrongly made deductions from her housing benefit entitlement when there is an individual voluntary agreement in place (IVA). This has left her unable to maintain the agreed payments to the insolvency practitioner, putting the IVA at risk.

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The Ombudsman’s role and powers

2. We investigate complaints of injustice caused by ‘maladministration’ and ‘service failure’. I have used the word ‘fault’ to refer to these. We cannot question whether a council’s decision is right or wrong simply because the complainant disagrees with it. We must consider whether there was fault in the way the decision was reached. (Local Government Act 1974, section 34(3), as amended)
3. We provide a free service, but must use public money carefully. We may decide not to start or continue with an investigation if we believe:
• we cannot achieve the outcome someone wants, or
• there is another body better placed to consider this complaint. (Local Government Act 1974, section 24A(6), as amended)
4. If we are satisfied with a council’s actions or proposed actions, we can complete our investigation and issue a decision statement. (Local Government Act 1974, section 30(1B) and 34H(i), as amended)

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How I considered this complaint

5. I considered the information supplied by Miss X’s representative on her behalf. I considered the Council’s response to my enquiries. I considered the relevant law and guidance including the Department for Work and Pensions Housing Benefits Overpayments Guide 2015.
6. I gave Miss X’s representative and the Council the opportunity to comment on a draft of this decision. I considered their comments before reaching a final decision.

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What I found

What happened

7. In September 2016 the Council calculated Miss X owed it around £11,000 in overpaid housing benefit from September 2013 to August 2016 due to an undeclared increase in her earnings. After contacting Miss X’s employer the Council calculated Miss X owed a further £6,000 from July 2011 to September 2013.
8. As Miss X was continuing to receive housing benefit the Council made deductions from her ongoing entitlement.
9. In August 2017 Miss X was summonsed to appear in court later that year in relation to fraudulently failing to declare changes to her income.
10. In December 2017 Miss X made an individual voluntary agreement (IVA). This is an agreement made with creditors to pay debts over a set period of time. It is a formal legal agreement which is set up and managed by an insolvency practitioner. All creditors are invited to accept or reject an IVA proposal. The Council was named in the IVA as one of Miss X’s creditors. The insolvency practitioner sent the Council a copy of its creditors’ pack. The Council says it was unaware of the agreement and it has no record of the virtual creditors meeting.
11. In January 2018 the Insolvency Practitioner wrote to the Council about the IVA. The Council says this is when it became aware of the IVA.
12. In April 2018 Miss X was convicted of fraudulently failing to declare changes to her income.
13. The Council wrote to the Insolvency practitioner in July 2018 and asked that the housing benefit overpayment be removed from the IVA. It considered a debt incurred due to the fraudulent actions of the debtor should not be included in an IVA. It said it would continue to seek recovery of the housing benefit overpayment through the powers of recovery it holds.
14. In December 2018 Miss X’s representative wrote to the Council to complain about the Council continuing to take deductions from housing benefits even after the IVA was approved. They said Miss X was unable to make the payments required under the IVA because of the deductions. They also considered the Council should write off any remaining balance after the completion of the IVA. They wrote again on January 2019 as they had not received a response from the Council.
15. The Council responded in February 2019. It apologised for not replying to the December letter. It said it had received legal advice on how to deal with fraudulent debts. It was satisfied it could recover those debts within an IVA by deductions from ongoing housing benefit. Miss X’s representative responded and asked to go to stage two of the Council’s complaints’ procedure. They set out the Council had not challenged the IVA and had not written to the Insolvency Practitioner until July 2018. It had continued to make illegal deductions from her benefit. They had received advice that creditors were bound by the IVA even if the debt is judged to have been obtained fraudulently.
16. The Council responded at stage two of the complaints’ procedure in April 2019. The Council was satisfied with its approach to recovering the debt. It set out the Council did not challenge the IVA as it was unaware of it at the time it was made. It set out its view of the legal position that fraudulent debts are still recoverable where an IVA is in place and that it would not write off the balance.
17. Since May 2019 Miss X has not been entitled to housing benefit.

Findings

18. Under the Social Security Administration Act 1992, overpaid housing benefit can be recovered by deductions from ongoing housing benefit entitlement. The DWP Housing Benefits Overpayments Guide sets out that deductions from benefit are deductions at source and not a ‘claw back’. This means the debtor has no right to receive any more than the net amount of the benefit and at no time does the deduction become the property of the debtor. On this basis, the Council was entitled to make deductions from Miss X’s ongoing benefit and is not at fault.
19. The Guidance Manual says fraudulent debts cannot be recovered when the IVA is discharged. However, this is not set out in law, and there is no precedent for this position. It is the Council’s view that there is a well-established principle, consistent with the courts, that no-one should benefit from their fraudulent actions. It has sought legal advice which supports its view that it can recover the debt even after the IVA is discharged.
20. The Council has considered the relevant guidance and sought legal advice before reaching its views on the recovery of fraudulent debts. As there is no fault in the way the Council reached its decision, I cannot question the decision itself. Whether the Council can recover the debt outside of the IVA, or following its discharge, are points of law that I cannot make a finding on. The Ombudsman cannot determine a point of law. If Miss X wishes to challenge the legality of the Council’s decision it is open to her to seek legal advice.
21. The Council says it was unaware of the virtual creditors’ meeting. The insolvency practitioner has provided a copy of the pack it sent to the Council. I cannot now know whether the Council received the pack or not. However, in any case, this did not affect the Council’s subsequent decisions regarding recovery of the overpaid housing benefit.

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Final decision

22. I have completed my investigation as there is no evidence of fault by the Council. In addition, decisions on points of law are for the courts, not the Ombudsman.

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Investigator's decision on behalf of the Ombudsman