On Monday 29 April, APPG Debt and Personal Finance and the APPG on Universal Credit held a joint event to consider how claimants are managing their money on Universal Credit, amid concerns that UC has increased and exacerbated problem debt.
Minesh Patel, Principal Policy Manager at Citizens Advice said that while the charity has welcomed the principles behind UC, the new benefit has been plagued by design and delivery problems. Half of clients on UC are struggling to pay essential bills during the waiting period for the new benefit. Since the beginning of its roll-out, Citizens Advice has helped more than 230,000 people with UC-related problems.
Citizens Advice says the Government should reform UC in three key ways. Firstly, the Government should get money to people quicker, to stop people on UC falling into arrears. Second, the Government should ensure people have enough to live on and end the benefits freeze to ensure household incomes keep up with inflation. Third, the Government should help people budget, and increase awareness of alternative payment arrangements.
Rachel Gregory, Social Policy and Relationships Manager at Christians Against Poverty said that while some people moving onto UC have existing issues with debt, often the transition to Universal Credit is when debt problems begin. Ms Gregory echoed Citizens Advice’ concerns, pointing to debt deductions from UC as the cause of additional financial strain.
Ms Gregory explained that benefit deductions used to clear monies owed to government and household arrears, are often being taken at a rate that’s unaffordable. The maximum amounts that can be taken for some of these debts, without consent, has increased to 40% of monthly income. Under the new system for UC, there are also higher minimum deduction rates for specific types of debt.
Christians Against Poverty is calling for the Government to adopt debt collection best practice on deductions to stop undue financial strain. The Government’s plan to extend the repayment timeframe for deductions is welcome, but as it won’t be implemented for three years, for many people this will be too late. Instead, CAP like many organisations say debt repayments should be based on an affordability standard, not a rigid timeframe.
Abby Jitendra from the Trussell Trust said a 5-week wait for Universal Credit is too long, forcing many people to turn to food banks as a result. The Government’s attempt to remedy the waiting period through advance payments (APs) means claimants face the unpalatable choice, either hardship now or hardship later. For many people who take an advance, the debt becomes hard to get out of. Trussell Trust says the Government could solve these issues by making APs into a discretionary grant instead.
A caseworker for Karin Smith MP suggested the UC system is being abused by Government in an attempt to claw back some of the billions of pounds of outstanding tax credit overpayments. Making a claim for UC reactivates these debts, when arguably they should be unenforceable. In particular, after 6 years of creditor inaction, debts under consumer credit law would be written off. Ruth George MP drew parallels with claw back of overpayments of carers allowance. Ms George said saddling claimants with surprise debts at the start of a claim risks undermining the purpose of the social safety net and this is an issue Government needs to look at again in the round.
Lord Turnbull, former head of the civil service said another issue is that some claimants have been wrongly accused of benefit fraud, with unjust debts added to their account. The Government should ensure these claimants don’t face deductions for monies they should never have owed.
Ruth George MP and Yvonne Fovargue MP said they would seek to press the Government for much needed reforms by putting in for a Westminster Hall debate on Universal Credit and debt.