Guide to Financial Redress for Maladministration
Ex gratia special payments to compensate for unreasonable or exceptional delay
Overview
What is the legal position?
88 There is no comprehensive entitlement in law to interest for a period during which individuals or bodies may have been denied money to which they are entitled.
What about unreasonable or exceptional delay?
89 Delay is among the examples of maladministration quoted during the passage of legislation relating to the Parliamentary Ombudsman and this section explains when the Department will provide redress for unreasonable or exceptional delay.
How does the Department compensate for delay?
90 Where the arrears of benefit or child support maintenance concerned are at least £100 compensation for delay is considered. It is generally calculated as if it was an interest payment and, in line with HM Treasury guidance, is normally calculated on the basis of simple interest. Compound interest is however used if the delay has been for a very long period. The interest rate used is the Average Retail Shares and Deposits rate supplied by the Building Societies Commission - part of the Financial Services Authority. However, payment for delay will not be made where any compensation calculated is less than £10. In the vast majority of cases this approach provides reasonable compensation for loss of value or loss of use of the funds.
What if the person has incurred greater costs than those generally provided for?
91 Where the complainant has been forced, as a result of the maladministration, to borrow, either by loan or overdraft, a different approach may be appropriate. These are cases of additional expenditure that may be greater than the interest due under our normal formula. If that is the case, it might be appropriate to reimburse the actual interest paid instead of using the Average Retail Shares and Deposits rate.
What does the Department take into account?
92 In considering compensation for delay, the Department takes into account any relevant factors including:
- the need to allow for normal delay - the span of time which normally elapses because of the administrative procedures properly involved in dealing with the matter. This does not mean that compensation is appropriate simply because this period has been exceeded - the test is whether the delay is exceptional or unreasonable
- any contribution to the delay by the customer's own conduct his or her actions or inaction which may be a material factor, and
- the degree to which the customer can be considered to have suffered financially as a result of the delay.
Note: As stated above, an interest payment for delay will not be made where the arrears of benefit or child support maintenance concerned is less than £100 or any compensation calculated is less than £10.
Details of the scheme
Allowing reasonable time for the proper processing of claims and applications
93 All dealings with the Department take time, whether or not errors occur, as officials are required to make sure that they have sufficient information to determine any entitlement. If they have insufficient information, any further details must be gathered before entitlement to benefit can be established. Due to the different nature of individual benefits, the time needed for this proper process varies from benefit to benefit. So, although such delays may understandably be frustrating for the customer they are not, of themselves, unreasonable and do not automatically lead to interest being paid.
Claims clearance targets
94 As an indicator of the anticipated timescales likely to be involved in establishing entitlement to benefit, the Department uses internal operational claims clearance targets. These targets are set at levels that reflect the different nature of benefits and pensions and are indicators of what should normally be achieved, although they are not guarantees.
Delays must be unreasonable and exceptional before redress can be considered
95 In the majority of cases, the Department should process claims and applications within the timescales set out in the appropriate targets. However, some cases will legitimately take longer to process than others because of the complex nature of the case and the degree of work involved. Therefore:
- failure to process a claim within the claims clearance target will not, in itself, give rise to a special payment
- a special payment for compensation for delay will only be considered when
- unreasonable and exceptional delay has occurred and
- maladministration has contributed significantly to that delay.
Indicators of delay
96 To help officials decide promptly whether unreasonable or exceptional delay has occurred, objective indicators of delay have been produced for use as a measure (see paragraphs 114 to 121). Where payments are accepted as having been unreasonably and exceptionally delayed due to official error, a special compensatory payment will be considered. This is in recognition of the loss of the use of a sum of money that the customer would have enjoyed but for that delay.
A list of indicators for all types of cases is at Annex C.
Delays that are not regarded as unreasonable or exceptional
Decisions overturned on review or appeal
97 Parliament has laid down that decisions on entitlement to benefit should be determined by the Secretary of State and that those decisions should be subject to appeal to an independent tribunal or higher tier such as a Commissioner. It follows that Parliament clearly envisaged some decisions being open to legitimate debate and provided a degree of independent decision making to resolve such issues. The higher tiers of adjudication can often have fresh information given to them that was not available at the time that the original decision was made, can take oral evidence from the parties involved or may take a different view of the facts. As a result they may form a different judgement on the person's entitlement. That does not of itself mean that the original decision was unreasonable.
98 The overturning of decisions by higher tiers was clearly envisaged by Parliament. However, no provision was made for interest to be paid in such cases or for the reimbursement of legal costs and expenses even though such processes would inevitably delay the point at which entitlement was settled and some additional costs would sometimes be involved. We would not therefore in normal circumstances pay any interest or meet any costs involved when a decision is overturned on appeal.
99 There is, however, an exception to this general policy. Whenever the Department accepts that maladministration has occurred, the general principle that we adopt is to provide redress which is fair and reasonable in the light of all the facts and circumstances of the case. On that basis, where the original decision was wholly unreasonable or clearly incorrect based on the evidence available at the time, the Department will accept that the overturning of the decision was in correction of maladministration. In such cases there should have been no need to go through an appeals process and the delays involved should have been avoided. Where this applies the Department will consider making a special payment for the delay in payment being made and will meet any additional costs that were reasonably incurred in getting the matter corrected.
What is a ‘wholly unreasonable’ or ‘clearly incorrect’ decision on a claim or application?
100 The position that is to be adopted is similar to that used in Judicial Review. To be regarded as wholly unreasonable, it is not sufficient for the decision to be one that another person would not have made.
As Lord Hailsham observed:
‘Two reasonable persons can perfectly reasonably come to opposite conclusions on the same set of facts without forfeiting their title to be regarded as reasonable.’
Lord Diplock expanded on that principle by saying that to be ‘wholly unreasonable’ the decision must be:
‘so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.’
A decision may be regarded as ‘clearly incorrect’ if it is self-evident that it is wrong. For example, a decision maker may have awarded a benefit but the award was wrongly recorded as a disallowance when it came to be implemented. Other accidental or ‘slip of the pen’ errors that might have adversely affected the customer could be considered under this category.
Cases delayed due to industrial action
101 In the absence of specific guidance from HM Treasury, compensation for delays caused by industrial action, whether within or outside the Department, should not be paid: the Department has been prevented from achieving the normal standard of effective administration by circumstances beyond its control. This does not preclude the payment of financial redress for other reasons coincident with the industrial action.
Areas where unreasonable and exceptional delay may occur
102 Consideration can be given to special payments following unreasonable and exceptional delay in
- the payment of benefit and/or benefit arrears
- the award of qualifying benefit (linked benefit cases)
- the assessment and review of child support maintenance (see paragraph 162 et seq).
103 Whenever a payment is to be considered under this category, the first criterion that must be satisfied is whether the unreasonable and exceptional delay amounted to or resulted from, maladministration.
Two types of maladministration
104 Maladministration in the context of delay will fall into two types - where either
- an administrative error has prevented a payment being made or has prevented a correct payment being made; or
- the actual delay constitutes the maladministration (that is, all relevant information was available but the Department failed to act upon it).
Maladministration must contribute significantly to the time taken
105 In deciding whether to award redress for delay we must take into account the degree to which any maladministration was involved. If this was not significant (see paragraph 106) then redress is not appropriate.
Where the indicator of delay is breached, has a significant element been caused by maladministration?
106 As indicated in paragraph 95, where the indicator of delay is breached, it is necessary to assess whether maladministration has added significantly to the delay experienced. The term ‘significant’ in this context should generally be interpreted as being
- when the period (or aggregated periods) of maladministration contributed to at least one third of the time taken to process the claim or application.
However, each case should be considered on its own merits.
107 The period over which a special payment for delay is calculated will not include the period covered by the indicator of delay. When a case has not taken longer than the indicator of delay, a payment for delay will not normally be considered. This is in recognition of the fact that all claims take time to process and that the delay encountered was neither unreasonable nor exceptional.
Start of indicator of delay
108 For the purposes of calculating the special payment, the indicator of delay will start from either
- the date of claim or first contact or
- the date of benefit entitlement whichever is the later.
Calculating the special payment
109 Where a payment for delay is to be calculated, the method of calculation is determined by the period of the arrears.
Method 1- simple interest
110 Special payments are normally calculated as simple interest using the average of the rates paid by building societies. In these cases the arrears are allocated to the tax years in which they accrued and interest is calculated separately from the start of the arrears period and then for each subsequent tax year, to the date arrears were paid. See Annex D for an example of the simple interest calculation and Annex E for the interest rates.
Method 2 - delay of 10 years or more - compound interest
111 In very exceptional cases, where delays of 10 years or more are involved, any special payment is calculated as compound interest. The factors used in a compound interest calculation are derived from an average of rates paid by building societies. See Annex F for examples of the compound interest calculations and Annexes G, H and I for the tables of factors to be used in the calculation.
Request from customer for a special payment not required
112 It is not necessary for the customer to ask for compensation nor to state that a loss has occurred, for the consideration to be undertaken. As officials hold details of both the sum owed and the circumstances of the delay, a special payment for delay should automatically be considered, at the same time as the payment of the arrears.
Failure to consider a special payment: ‘compensation on compensation’
113 A failure to consider a special payment automatically when arrears are paid to correct the effects of maladministration is itself an official error. The value of a special payment is eroded if unreasonably delayed and when this happens the special payment should be calculated in two stages:
- the payment for delay that should have been made as soon as possible after the arrears have been issued and
- a further sum to compensate the customer for the delay in making the first special payment should be calculated on the first compensation payment, without applying any indicator of delay, up to the date that this second further sum is actually paid. For this stage of the calculation, the date of error will be the date that the arrears of benefit were paid.
Note: To illustrate this an example follows. For simplicity, it does not show the benefit rates increasing during the period, although changes in rates will often be involved when the arrears due are assessed.
| Example of compensation on compensation |
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Due to Agency error Mr Q did not receive his Retirement Pension when it was due. While that was not entirely the Agency's fault, The Pension Service accepted that at least a third of the time taken resulted from maladministration. Mr Q had been entitled to Retirement Pension of £72.50 a week from 8 March 2001 and based on the indicator of delay, it should have been paid by 8 November 2001 at the latest. However, it was not paid until 6 June 2002. At that point arrears of £4,785 were paid to him and from then onwards he was paid his pension regularly and on time. As payment was unreasonably and exceptionally delayed Mr Q's case should have been considered for a special payment but that was overlooked. When this was picked up in December 2002 the interest that had been due to Mr Q in June 2002 was calculated to be £84.48. (for the period from 8 November 2001 to 6 June 2002) The sums due in each tax year were:
As the £84.48 was not paid to Mr Q until 19 December 2002 interest of £1.35 is due on it (for the period from 7 June 2002 to 19 December 2002). That brings the total interest paid to £85.83. |
Indicator of delay - benefit interrupted
114 An indicator of delay of three months is provided for cases where a regular payment of benefit (or part-payment of benefit) has been interrupted because of a clear error by the Department, rather than a delay in awarding benefit. However, if the normal indicator of delay for the relevant benefit is less than three months, the normal indicator will apply and not this three month indicator.
115 The three month indicator of delay (or the normal indicator of delay if less than three months) will commence from the date the benefit was incorrectly stopped, with interest being calculated from the day following the end of the indicator of delay period.
116 As with all special payments, discretion must be used and each case must be considered on its own merits.
Indicators of delay - waiting periods: agency/business specific
117 Cases involving appeals against assessment or entitlement to benefit use different indicators, see Annex C2. For Child Support Agency cases, a ‘waiting period’ is applied to each case (see paragraph 198 et seq and Annex C3).
Indicators of delay - linked benefits
118 The award of certain benefits (linked benefits) is dependent on the customer being in receipt of an associated benefit (qualifying benefit). For example, when the higher or middle rate of care component is payable with Disability Living Allowance (DLA), a customer's carer may be entitled to Carer's Allowance (Invalid Care Allowance before 1 April 2003).
119 When an error 3 is made in determining the qualifying benefit (or determining that benefit is unreasonably delayed) that causes a significant delay in payment of that benefit and this can have a knock-on effect on the award of any linked benefit. Where the Department administers both benefits, a special payment for delay should be considered on both benefits.
Qualifying benefit - indicator of delay longer than that for the linked benefit
120 Where the indicator of delay for the qualifying benefit is longer than for the linked benefit and that indicator is breached, the special payment should be calculated:
- in respect of delay on both benefits
- on the full amount of the arrears, and
- the interest calculated on the period from the day following the end of the period of the indicator of delay for the qualifying benefit, up to the date of payment.
| Example |
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Mr S is awarded a special payment for loss of statutory title to DLA from 3 January 2001 to 10 July 2002. As payment of DLA gives entitlement to a disability premium, the customer additionally receives a backdated increase in his Income Support. The indicator for delay for DLA (the qualifying benefit) is seven months longer than that for Income Support (the linked benefit). When calculating the compensation for delay, the indicator for delay for DLA is applied to both DLA and Income Support (that is compensation for delay is payable in respective of both benefits seven months after 3rd January 2001, (that is from 3 August 2001) up to the date that the arrears of benefit were paid). |
Linked benefit - indicator of delay longer than for qualifying benefit
121 Where the indicator of delay is longer for the linked benefit than for the qualifying benefit, consider payment for delay in the normal manner on the qualifying benefit. Apply the indicator of delay for the linked benefit from the date of claim of the qualifying benefit. Where this is breached consider payment for delay in respect of the linked benefit. (Please also see paragraphs 50-51 regarding loss of statutory entitlement to linked benefits).
Additional special arrangements for the Child Support Agency
122 Additional special arrangements apply to Child Support Agency clients who have experienced delay as a result of maladministration. These are described at paragraph 161 et seq.
3 See paragraph 97 et seq where a decision is overturned on review or appeal. These would not ordinarily be regarded as indications that the original decision was wholly unreasonable and amounted to an official error.