R (Cooper) v Secretary of State for Work and Pensions

JurisdictionEngland & Wales
CourtSupreme Court
Judgment Date14 Dec 2011
Neutral Citation[2011] UKSC 60

[2011] UKSC 60


Michaelmas Term

On appeal from: [2010] EWCA Civ 1431


Lady Hale

Lord Brown

Lord Mance

Lord Kerr

Lord Wilson

Secretary of State for Work and Pensions
Payne and another


Clive Sheldon QC

Denis Edwards

(Instructed by Department for Work and Pensions Legal Services)

Respondent (Payne)

Richard DrabbleQC

Desmond Rutledge

(Instructed by Edwards Duthie)

Respondent (Cooper)

Richard Drabble QC

Paul Stagg

(Instructed by Public Law Project)

Heard on 3 November 2011



The issue in this case is whether the Secretary of State for Work and Pensions can continue to recoup Social Fund loans and benefit overpayments by deduction from current benefit payments during the "moratorium" period after the making of a Debt Relief Order (DRO) under Part 7A of the Insolvency Act 1986. The present state of the law is untidy, to say the least. Cranston J in the High Court and a majority of the Court of Appeal (Smith and Toulson LJJ) have held in this case that the Secretary of State cannot continue to make these deductions: [2010] EWHC 2162 (Admin), [2010] BPIR 1389 and [2010] EWCA Civ 1431, [2011] 1 WLR 1723. But Keene J in the High Court has held that such deductions can continue to be made between the making of a bankruptcy order and the bankrupt's discharge from bankruptcy: R v Secretary of State for Social Security, Ex p Taylor and Chapman [1997] BPIR 505. The House of Lords has reached the same conclusion in the context of the rather different Scottish bankruptcy law: Mulvey v Secretary of State for Social Security 1997 SC (HL) 105. Once a bankrupt is discharged, however, the Court of Appeal has held that the liability to repay the Secretary of State is also discharged: R (Balding) v Secretary of State for Work and Pensions [2007] EWCA Civ 1327, [2008] 1 WLR 564.


The Secretary of State would like to introduce coherence into the scheme in two ways: firstly by assimilating the position during the moratorium after a DRO with the position after a bankruptcy order; and secondly by reversing Balding, so that the debt can continue to be recouped after a bankrupt's discharge. Ideally, the same would apply at the end of the DRO moratorium period. The claimants, on the other hand, would ideally introduce coherence by holding that the Secretary of State's deduction power does not survive the making either of a DRO or of a bankruptcy order. Balding was correctly decided and the same principle applies at the end of the moratorium period.

The facts

The facts of the two test cases before us are typical of many. Mrs Payne was made a Social Fund loan of £843 in September 2007 in order to replace her washing machine and cooker. The Secretary of State did not start to recover this by deduction from her benefits at that stage. But in August 2009, she obtained a DRO listing the loan among her qualifying debts. When she informed the Secretary of State of this, he began deducting £23.59 per week from her income support, although this was reduced in December to £11.64 per week. These proceedings for judicial review of the legality of the deductions were begun in March 2010. InAugust 2010, the one year moratorium period came to an end and the debt was discharged.


Ms Cooper is in receipt of incapacity benefit and disability living allowance. In August 2009, the Secretary of State determined that she had been overpaid incapacity benefit in the sum of £1,195.07 and in December 2009 he began recovering this from her by deducting £128.44 from her benefits every four weeks. In January 2010, Ms Cooper obtained a DRO which listed the overpayment as one of her qualifying debts. In March 2010, she too began proceedings to challenge the continued deductions from her benefits. In January 2011, the one year moratorium ended and the debt was discharged.

The power to deduct

The Secretary of State is entitled to recover benefits which have been overpaid because of misrepresentation or non-disclosure: Social Security Administration Act 1992 (SSAA), section 71(1). Before he can do so, the erroneous award of benefit must have been reversed or varied on appeal, or revised or superseded by a fresh award under section 9 or 10 of the Social Security Act 1998: SSAA, section 71(5A). Amounts recoverable under section 71(1) "may, without prejudice to any other method of recovery, be recovered by deduction from prescribed benefits": SSAA, section 71(8). All kinds of benefits, whether contributory or non-contributory, income related or payable irrespective of means, are prescribed: see Social Security (Payments on account, Overpayments and Recovery) Regulations 1988, SI 1988/664, reg 15. However, not only is this without prejudice to any other method of recovery, but it is also expressly provided that overpayments can be recovered by execution issued from the county court as if they were payable under an order of that court (and equivalent provision is made for Scotland): SSAA, section 71(10). Section 71 is also applied with modifications to overpayments from the Social Fund: SSAA, section 71ZA.


In the same way, if a Social Fund award is recoverable – that is, a loan – then "Without prejudice to any other method of recovery, the Secretary of State may recover an award by deduction from prescribed benefits": SSAA, section 78(2). Equivalent provision is made for the recovery of any amount of housing benefit paid in excess of entitlement: SSAA, section 75(4). Her Majesty's Revenue and Customs (HMRC) also have equivalent powers to recover overpayments of working tax credit and child tax credit by deduction from payments of any tax credit: Tax Credits Act 2002, section 29(4). We are told that considerable sums of money owed to HMRC, the Secretary of State and other public bodies are listed in DROs. The figures quoted to us were respectively nearly £9m to HMRC, nearly £8m to the Secretary of State, of which over £6m was in respect of Social Fund loans, and £20.7m to other public bodies. Whether these include other debts aswell as loans, overpaid benefits and tax credits was not clear. Nor were we told how much has currently to be written off at the end of the moratorium period.

Debt Relief Orders

To put it shortly, debt relief orders (DROs) are a new and simplified way of wiping the slate clean for debtors who are too poor to go bankrupt. As Toulson LJ explained in the Court of Appeal, they were the product of two consultation papers: the first was issued by the Department for Constitutional Affairs in 2004, entitled A Choice of Paths – Better options to manage over-indebtedness and multiple debt. This proposed a new scheme for people with "no income, no assets" who were unable to pay their debts. The second was issued by the Insolvency Service in 2005, entitled Relief for the Indebted – An Alternative to Bankruptcy, and suggested criteria for such a scheme and how it was intended to operate.


The new scheme was introduced into the Insolvency Act by the Tribunals, Courts and Enforcement Act 2007 and came into force in February 2009. Application is made, not to a court, but to the official receiver through a qualified intermediary (such as a specialist debt adviser): Insolvency Act ( IA) 1986, section 251B. The debtor must fulfil certain prescribed conditions: IA 1986, section 251C(5), Schedule 4ZA, Insolvency Rules ( SI 1986/1925), Part 5A, and Insolvency Proceedings (Monetary Limits) Order 1986 ( SI 1986/1996), as amended. For example, her monthly surplus income must not exceed the prescribed amount, currently £50; the total value of her property (leaving out such things as clothes, furniture and household equipment, tools of the trade and a modest domestic motor vehicle) must not exceed the prescribed amount, currently £300; and her overall indebtedness must not exceed the prescribed amount (currently £15,000). To avoid people repeatedly running up debts and having them wiped out by an order, it is not possible to get another DRO within six years.


The DRO is made in respect of "qualifying debts". A debt qualifies if it is for a liquidated sum payable either immediately or at some certain future time and is not excluded: IA 1986, section 251A(2). It does not qualify to the extent that it is secured: IA 1986, section 251A(3). Excluded debts are those which are prescribed in the Insolvency Rules 1986, rule 5A.2. These include student loans but do not include Social Fund loans or overpaid benefits. It is not suggested that the liability to repay these is not a "debt" for the purpose of section 251A. The application has to list the debts to which the debtor is subject at the date of the application: section 251B(2)(a). The official receiver can ask for further information from the debtor but does not at this stage give notice to the creditors. When the order is made, it must list the debts which the official receiver is satisfied were qualifying debts at the application date: section 251E(3).


When the order is made, "a moratorium commences on the effective date for a debt relief order in relation to each qualifying debt specified in the order": IA section 251G(1). What does the moratorium mean? This is governed by section 251G(2):

"During the moratorium, the creditor to whom a specified qualifying debt is owed –

(a) has no remedy in respect of the debt, and

(b) may not —

(i) commence a creditor's petition in respect of the debt, or

(ii) otherwise commence any action or other legal proceedings against the debtor for the debt,

except with the permission of the court and on such terms as the court may impose."


During the moratorium period, the creditors may object to the making of the order, or the inclusion of a debt in the order, or the details of the debt specified in the order: IA 1986, section 251K. The official receiver has power to revoke or amend...

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  • Sharon Mcgrath v Secretary of State for Work and Pensions
    • United Kingdom
    • Queen's Bench Division (Administrative Court)
    • 20 April 2012
    ...of Buxton LJ cannot stand in the light of the decision of the Supreme Court in R (Cooper) v Secretary of State for Work and Pensions [2011] UKSC 60, [2012] 2 WLR 1. Buxton LJ's analysis is effectively the same as the net entitlement principle, relied on by the Secretary of State in Cooper, ......
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