Press Release: Universal Credit deductions drive people further into debt

The charities the Foundation supports have raised concerns over welfare deductions and their impact on people facing complex social issues. A new report by Lloyds Bank Foundation for England and Wales brings together a range of evidence and research to highlight the issue and present a case for reform.

As living costs skyrocket, the Government continues to deduct up to 25% from universal credit payments, leaving more than 2 million people unable to afford basic necessities and driving them further into debt, according to a report published today (11 May) by Lloyds Bank Foundation for England and Wales. The charity is calling for an immediate review of universal credit deductions in order to help those most in need with the cost-of-living crisis. 


Just over one month since energy price hikes, the increase in national insurance and rising food and fuel costs, Lloyds Bank Foundation has released ‘Driver of Poverty,’ a report bringing together a range of evidence and research on how the current system of deductions from benefits impacts people. The report highlights how universal credit (UC) deductions are confusing, unmanageable, and forcing people into hardship, often through no fault of their own. It sets out urgent changes needed to help people deal with rising costs and prevent them from sinking further into poverty.  


Deductions are payments that DWP has the power to automatically take from benefit payments to pay off debts owed to government from loans such as advance payments, errors and historic benefit overpayments as well as some third party debts (e.g. utilities bills and rent arrears). Almost half (44%) of those receiving UC have money automatically deducted, with an average of £78 per month taken out - almost 20% of the payment a single person over 25 would receive (1) with many facing much bigger deductions. Research also shows that those with deductions are also around twice as likely to have gone without food, toiletries and utilities as those on UC without deductions (2) 


Before receiving UC, claimants face a five-week process delay with no benefits, forcing them to take an advance to cover the cost of essentials which has to be repaid through deductions from their UC payments, reducing what they have to meet bills and costs for months. In addition, millions of people moving onto UC suddenly find that errors made regarding the level of tax credits they were entitled to, often years earlier, kick in and have to be repaid. These government errors, which are not explained and are difficult to understand or challenge, are deducted automatically without consideration of whether the individual can afford them or the level of repayment. Taken alongside other deductions such as for council tax and other debts, many are left struggling to afford food or household bills. 


With the rate of inflation already rising to 8% but benefits increasing by only 3% this year, people are facing incredible challenges trying to make ends meet – deductions reduce people’s incomes even further. Research shows almost half (47%) of those referred to a foodbank were receiving lower levels of benefits as a result of deductions,3 and numbers are rising. 


River Olivia Rose, 41, from Leeds has been claiming universal credit for 18 months. Her allowance should be £324.84 a month. However, River says she has never received this full amount due to deductions, and instead receives £90-260 a month which fluctuates without any explanation of what the deduction are. She believes they may be related to the advance load she took when she first signed up to UC to cover the five weeks without benefits, child tax credit overpayments and a court fine she could not afford to pay. River explains: 


“This month I have just £143 to live on, I don’t understand what the deductions are for and there is nobody I can speak to who can explain. I have to beg and borrow from friends and family who are already struggling themselves in order to get by. Deductions don’t help me find a job, and really impacts on my mental health. I walk everywhere because I can’t afford travel costs, but I’m exhausted. I’ve lost so much weight I fit into children’s cloths. I use foodbanks, but you can only use the food bank three times a year. I can use it one more time this year.” 


Lloyds Bank Foundation is calling for an urgent review of how UC deductions are managed, with realistic recommendations for change that would be simple for the Government to implement. These include:

  • converting necessary advance payments into grants or reducing deductions to 5% to help people meet rising costs. 
  • before making any deductions from benefits, the Government should follow best practice and carry out affordability assessments by qualified advisors, such as is already implemented in other regulatory bodies. 
  • write off historic ‘debts’ that stem from government administrative errors, particularly for tax credits.  


Paul Street, Chief Executive of Lloyds Bank Foundation for England and Wales, said: At a time when the cost-of-living is soaring, the Government itself is making it harder for people by deducting significant sums from benefits, making it even harder for people to make ends meet. 

“The deductions system is clunky and not fit for purpose, pushing people deeper into poverty through no fault of their own. Charities every day see people have significant sums deducted from their benefits that they don’t understand, without warning and that doesn’t take account of their circumstances, leaving them struggling to pay their bills however well they budget.” 


The pandemic has shown that significant change to the benefits system and universal credit is possible and can be achieved quickly. Change to the system of deductions is necessary and needed now, particularly to help the increasing number of people now facing the most acute increases in living costs. 


Read the full Driver of Poverty Report here.




For more information or to arrange an interview, please contact Stass Daniells on or call 07968594549.  

1 Universal Credit: Ten years of changes to benefit claims and payments, House of Commons Library,   
2 Trussell Trust, Debt to Government, Deductions and Destitution   YouGov survey, 2008 people receiving Universal Credit, fieldwork August 2021 (unpublished). 
3 Trussell Trust, State of Hunger 21, 

Notes to editors: The Driver of Poverty report produced by Lloyds Bank Foundation for England and Wales brings together a range of evidence and research highlighting the impact of deductions and what needs to change, drawing from work from: Bevan Foundation, Centre for Social Justice, Child Poverty Action Group, Joseph Rowntree Foundation, Poverty2Solutions, Public Law Project, Standard Life Foundation, Step Change, Trussell Trust, Turn2Us, Z2K and a range of grassroots charities tackling disadvantage in communities across England and Wales.Lloyds Bank Foundation for England and Wales partners with small and local charities that help people overcome complex social issues. Through funding for core costs, developmental support and influencing policy and practice, the Foundation helps charities make life-changing impact. During 2021, the Foundation awarded £16.3m to more than 800 small and local charities. These charities the Foundation supports have raised concerns over welfare deductions. Therefore, the Foundation commissioned this report to gather evidence on the impact of deductions to make the case for reform.  The Foundation is an independent charitable trust funded by the profits of Lloyds Banking Group. 

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