THE scale of automatic debt repayments administered by the Department for Work and Pensions (DWP) means that, across all families receiving universal credit (UC), the basic payment is on average 8 per cent lower than the official figure, according to analysis published by the New Economics Foundation (NEF). This means every £1 in £13 paid through the basic rate is lost to debt deductions.

Using parliamentary questions, the analysis also finds that half of people currently receiving UC have money automatically deducted from their social security payments to repay debts. Each household with money deducted lost an average of £63 a month. This amounted to people on Universal Credit losing a total of £1.3 billion from their support in 2022/​23.

This loss of income was found to vary across the country. In the worst affected constituency, Blackpool South, two-thirds of families receiving UC have money deducted from their payments, reducing the average level of support for everyday costs like food and travel by 11.2 per cent. This is almost double the proportion in the least-affected constituency, South West Devon, where the level of support was 5.6 per cent lower.

Previous NEF research has found that current levels of out-of-work benefits are at their lowest level in 40 years. The DWP automatically deducts money from these UC payments when claimants are in debt, including to a private landlord, utility company, or the DWP itself. The new analysis demonstrates that DWP debt deductions are trapping low-income families in cycles of poverty and debt, both through benefits levels which do not meet basic needs, and mechanisms like the five-week wait which create debt for low-income families when they start claiming UC.

Sam Tims, senior economist at the New Economics Foundation, said: “The social security system should provide a safety net for us all. But low-income families are trapped in a vicious cycle of debt due to insufficient wages and state support and the relentless pursuit of debts that built up as a result.

​“Cuts to already meagre levels of universal credit have made it harder for people to afford the basics like food on the table and a warm home. The mental and physical strain this creates makes it more likely that they will be forced to take time off work.

​“If we want an economy that allows everyone to thrive, the next government must guarantee that social security covers people’s essentials and ensure this guarantee isn’t undermined by the pursuit of debt.”

According to parliamentary question 191730, in February 2023:

  • 730,000 households (16 per cent) lost money to pay back an advance from the DWP to cover the five-week wait to receive the first UC payment.
  • 910,000 households (20 per cent) lost money to pay back a budgetary advance from the DWP to meet emergency costs, which current low levels of social security payments cannot meet.
  • 640,000 households (14 per cent) lost money to pay back tax credits previously erroneously overpaid by HM Revenue and Customs, a debt people are often unaware of until they migrate from tax credits onto the UC system.

Low-income households may be able to access local crisis support through their local authorities, primarily through the household support fund and discretionary housing payments. In 2022/​23 these payments were worth £943 millon across England, with approximately 78 per cent going to working-age households.

But this new analysis shows how these support payments are dwarfed by the £1.3 billion taken out of UC for debt payments by the DWP. With the Household Support Fund (HSF) due to run out this September, the analysis finds that, without an extension, money lost to debt deductions will be 13 times higher than local crisis support available to working-age low-income families.

NEF recommends that the next government makes the HSF permanent and lowers the maximum amount which the DWP can deduct from each universal credit payment from 25 per cent to 15 per cent. Beyond this, it recommends that the government introduces an ​’essentials guarantee’ which uses the social security system to establish an income floor below which no family can fall.

* Read the new analysis here.

* Read the research showing that out-of-work benefits are at their lowest level in 40 years here.

* Source: New Economics Foundation