26. In his report, the Comptroller and Auditor General drew attention to the increasing amount of exchequer funds being paid out to customers of the Agency in compensation to non resident parents or parents with care for losses caused by administrative errors or delays by the Agency (Table 2).[19]

27. We asked the Agency about the make-up of these compensation payments and how they were calculated, in particular about the extent to which these payments were for the inconvenience and distress caused by the errors they made.

28. The Agency told us that of the £4,350,437 spent on compensation payments in 1998-99, there had been 4,218 payments totalling £561,633 (13 per cent) for inconvenience and distress. The highest payment made for inconvenience and distress - a consolatory element—had been for £1,150, the lowest £50, and the average £133.15. The consolatory element was mainly aimed at recompensing actual financial loss, for example bank charges, telephone calls, independent advice or loss of interest through not having received the money. The balance reinstated the individuals concerned to the position they would have been in had the Agency not made an error.

29. As regards individual payments, the largest had been for £27,393.60 and this had not included any "consolatory" element. The maximum amount paid including a consolatory element had been for £18,688.51 including £50 for inconvenience and £750 for severe distress.

30. The Agency explained that for compensation payments, each case was considered on its merits in accordance with detailed guidance laid down for the Department of Social Security as a whole, in consultation with the Treasury. These rules were regularly reviewed and following representations by the Parliamentary Commissioner for Administration and the Independent Case Examiner, the grounds and conditions for making special payments had been expanded. Any substantial payment would, however, have to go to the Department of Social Security for approval.

31. The guidance covered a wide range of circumstances, but five basic principles were followed when considering redress:

• All mistakes are admitted and put right;

• Arrangements for considering redress are made public;

• Redress is fair and reasonable;

• Redress restores the customer to the position he/she would have been but for the maladministration;

• Account is taken of protection of the public purse and the needs of the customer.[20]

32. Where there was evidence of delay in payments due to official error, a special payment could be considered. These payments were calculated in the form of interest using the Average Shares Rate supplied by the Building Society Commission. Financial redress might be appropriate in exceptional circumstances where, although the customer had suffered no actual financial loss, the Agency's maladministration had had an adverse effect on their life. This might have resulted in gross inconvenience resulting from persistent error; gross embarrassment, humiliation or unnecessary personal intrusion, or severe distress.

33. The Agency added that the fourfold increase in compensation over the last year had partly been due to the widening of the scope for compensation applications following detailed discussions with the Ombudsman and the Independent Case Examiner. It was also partly due to the work done to clear the backlogs of assessments, which were more than 52 weeks, and reviews that were well overdue. The Agency expected the amount of compensation paid out would start to level off in the next 12 to 18 months.[21]

34. In his report, the Comptroller and Auditor General also noted that £1.3 million had been paid in compensation to parents with care for delays encountered after the non-resident parents had paid maintenance regularly and without default for more than a year. [22] The Agency told us that this sum had also reached a peak as the Agency had tackled backlogs, and was expected to fall from now on.[23]

Conclusions

35. Over the past year the value of compensation to individuals as a result of the Agency's maladministration has quadrupled, to over £4.35 million, mainly as a result of work to clear backlogs of cases and revised rules on calculating payment. But this is misleading, because the bulk of this sum merely put individuals concerned in the position they would have been had the Agency not made an error. The total value of real "consolatory payments" in 1998-99 was £561,663, and the average payment of £133.15.

36. Given the circumstances of the many cases which members of the Committee have come across, involving significant difficulties for constituents, we are concerned whether these "consolatory payments" really do compensate individuals for the full impact of maladministration on their financial interests and lives. We urge the Agency to look again at the rules governing compensation, in conjunction with the Department of Social Security, the Ombudsman and the Independent Case Examiner, to see whether they need adjustment to make redress truly fair and reasonable.

20  Minutes of Evidence Qs 40-42, 143-147, 162-169, 194-198 and Evidence, Appendix 1, pp 22-25 Back

21  Minutes of Evidence Qs 104-105, 170-179 Back

22  C&AG's Report (HC 533, 1999-2000 Session) paras 3.10-3.11 Back

23  Minutes of Evidence Qs 151-153 Back