Deductions: Driver of Poverty

The case for reform of deductions from Universal Credit payments

Deductions: Driver of Poverty - The case for reform of deductions from Universal Credit payments

Deductions are impoverishing individuals and families against a backdrop of low incomes, rising living costs and widening inequalities during Covid.

 

Deductions are payments that DWP automatically takes out from benefit payments to pay off debts owed to government from loans such as advance payments, or errors and historic benefit overpayments as well as some third party debts (e.g. utilities bills and rent arrears). They are primarily the explicit result of Government policy, not individual behaviour, and contribute to undermining the Government’s objectives, especially on Universal Credit.

 

The charities the Foundation supports have raised concerns over welfare deductions and their impact on people facing complex social issues. We have produced this report to bring together a range of evidence and research to highlight the issue and present a case for reform. 

I am living on £118 a week with three children. I had to stop going to post-traumatic stress disorder treatment as I can’t afford to go. I still don’t know why they are only paying me £118. They are taking £100 per month leaving me needing the foodbank and struggling with utilities. I am a single mum and have lost my parttime job. Financially I don’t have enough. We depend on the Universal Credit which is not enough for feeding my children as I can’t afford the electric and gas bill.

Client story from StepChange found here

The Issue with Deductions

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.

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 council tax and other debts, many are left struggling to afford food or household bills.

44%

of people receiving Universal Credit were having money deducted to repay debts in November 2020.

£78

on average is deducted from people’s monthly UC payment

20%

of a single UC claimant’s income is deducted.

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.

River Olivia Rose

The Main Sources of Deductions

Deductions are hard wired into Universal Credit through advance payments, historic tax credit debt and council tax arrears.

Advance Payments

Advance Payments are loans offered by DWP to cover the 5-week wait until the first UC payment is received.

Advance Payments are a constrained choice between no income for 5 weeks or debt and reduced benefit income later. All too often, the impact of this false choice for many low-income families is acute hardship.  

Historic Tax Credit Debt

Deductions to recover historical tax credit overpayments and arrears are part of the transition from legacy benefits to UC. They are often triggered when a claimant moves onto UC.

These deductions result from historic overpayments and DWP errors which were a common feature of the old tax credit system that was based on reconciling actual income with estimated income.

Council Tax Debt

Different councils take different approaches to chasing council tax debt and enforcement and have different schemes in place to support people who cannot afford to pay.

The variation in what councils do has created a postcode lottery around the country. For example, some councils froze debt recovery during the pandemic while others continued to pursue arrears.

Change is Possible

The system of deductions is neither fair nor efficient. Change is possible – and there is a precedent for change.

We're 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. 

  • 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.

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