SUSPENDING DEDUCTIONS FROM UNIVERSAL CREDIT for Government debt would help plug the gap caused by the shortfall between the Government’s support measures and wider price increases for over a million low income households, says StepChange Debt Charity. The charity has released its research in a new briefing, Hardship by design?
How to end unaffordable debt deductions.
The effect of deductions is especially pernicious due to the rising cost of living. The Government has already suspended deductions for ongoing energy usage because of the risk that these repayments will cause hardship. However, StepChange evidence suggests the impact of rising costs make deductions for Government debts a major risk for households on low incomes.
StepChange clients on Universal Credit are set to face an average monthly budget deficit of £77 come October, even with Government support. The average deduction for advances and overpayments is around £50 a month. StepChange is therefore calling on the Department for Work and Pensions to pause deductions for these debts until benefits are uprated next April. Suspending deductions does not require legislation, and could be implemented quickly, the charity says.
This pause would allow the Government to reform the system of deductions for overpayments, so it is better aligned with the ability of claimants to cope with repayments. StepChange’s new research, based on its clients, shows that 49 per cent of those 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.
Despite the extreme hardship often faced by people not in work and relying on Universal Credit, they can face deductions of 15 per cent for non-priority debts like overpayments. Claimants who are in work can face an even higher 25 per cent deduction, even though they may only be working a few hours.
StepChange research found that nearly two in five (38 per cent) clients earning less than the UC work allowance (for those not in receipt of housing support) of £573 are in a negative budget situation. 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 says rates of deduction for overpayments are at the Government’s discretion, so they could be amended without legislative change. If Government paused deductions, this would allow time for a more fundamental review of how deductions work, as they were problematic even before the rise in the cost of living. The charity makes three long term recommendations:
- End overpayment deductions for out of work claimants and those on low income.
- Reduce the maximum rate to five per cent.
- Link deduction rate to earnings, incrementally increasing towards five per cent as a claimant’s earnings increase
Modelling suggests that, among StepChange clients aged over 25, these changes would reduce the proportion of out of work single claimants in a negative budget by a quarter, and for couples by nearly a third.
StepChange Director of External Affairs, Richard Lane, 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.”
Statistics in the report are based on analysis of 60,445 clients in receipt of Universal Credit – 9,848 with a tax credit or benefit overpayment debt. All clients went through a full debt advice session including a budget assessment in 2021.
* Read Hardship by design? How to end unaffordable debt deductions here.
* Source: StepChange