Universal credit: debt charity calls for Government to stop deductions from claimants in cost of living crisis

StepChange said its clients on the benefit are set to face an average monthly budget deficit of £77 by October even with Government support

Source > i News

By Grace Gausden

June 30, 2022 15:01 BST

A debt charity has called for the Government to suspend deductions from universal credit payments to help those struggling in the cost of living crisis.

StepChange said this would give urgent relief to more than a million low-income households, and plug the shortfall left in family budgets despite Chancellor Rishi Sunak’s support measures.

The Government can deduct money from universal credit payments to recoup advances, special hardship payments and benefit overpayments.

It has already stopped energy suppliers being able to set up new deductions for ongoing energy usage, because of the risk these repayments will cause hardship amid soaring gas and electricity prices.

However, StepChange says evidence suggests a wider suspension is needed to help struggling households.

It said its clients on universal credit are set to face an average monthly budget deficit of £77 by October even with Government support. The average deduction for advances and overpayments is about £50 a month.

The charity is calling on the Department of Work and Pensions to pause deductions until benefits are uprated next April. Suspending deductions does not require legislation, and could be implemented quickly, it says.

This pause would allow the Government to reform the system of deductions, so it is better aligned with the ability of claimants to cope with repayment.

Universal credit can also be reduced if a claimant has reported a change of circumstances that means they would be entitled to less, for example, it they have moved home, or if they have earned more from work.

Claimants can face a maximum deduction of 15 per cent for non-priority debts like overpayments. Those receiving universal credit who are in work can face an even higher 25 per cent deduction, even though they may only be working a few hours.

StepChange’s new research, based on its clients, shows that 49 per cent of people not in work and experiencing deductions from universal credit for previous overpayments have a negative budget – meaning their income is not enough, even after debt advice, to meet their basic essential costs.

This is a rate 50 per cent higher than among StepChange clients overall.

Many Universal Credit households find themselves in a negative budget (Stepchange)
Many Universal Credit households find themselves in a negative budget (Stepchange)

The charity found that 38 per cent of clients earning less than the universal credit work allowance for those not in receipt of housing support – £573 – have a negative budget.

It said a 25 per cent deduction for these households is almost certain to leave them struggling to afford day-to-day essentials and may force them to borrow money to get by.

StepChange said rates of deduction for overpayments are at the Government’s discretion, so could be amended without legislative change.

Its proposal does not cover deductions for child maintenance.

It called for a fundamental review of how deductions work, describing the system as problematic. The charity makes three long term recommendations:

  • Ending overpayment deductions for out-of-work claimants and those on low income;
  • Reducing the maximum deduction rate to 5 per cent;
  • Linking the deduction rate to earnings, so that it would incrementally increase towards 5 per cent as a claimant’s earnings increased.

Modelling by StepChange suggests that, among its clients aged over 25, these changes would reduce the proportion of out-of-work single claimants on a negative budget by a quarter – and for couples, by nearly a third.

Richard Lane, StepChange director of external affairs, said: “The principle that debts owed to Government should be repaid when it’s affordable for people to do so is not in question, but now is a time for a pragmatic pause.

“Among our clients, around half of those relying on universal credit and subject to deductions for overpayments are unable to make ends meet.

“The Government has an opportunity to plug the support gap for over a million households by putting these deductions on hold until benefits are uprated, and taking the opportunity created by the pause to rework deductions into an affordability framework that fits better with best practice in debt advice.

“We think that’s a sensible response to mitigate how the cost of living crisis is playing out among low income households reliant on universal credit.”


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