People on universal credit losing £1 in every £13 of basic payment due to automatic DWP debt deductions

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% lower than the official figure, according to analysis published today 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 (UC) losing a total of £1.3bn 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%. This is almost double the proportion in the least-affected constituency, South West Devon, where the level of support was 5.6% 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. Today’s 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 if debts that built up as a result.

According to parliamentary question 191730, in February 2023:

• 730,000 households (16%) 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%) 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%) 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 £943m across England, with approximately 78% going to working-age households.

But today’s analysis shows how these support payments are dwarfed by the £1.3bn taken out of UC for debt payments by the DWP. With the 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% to 15%. Beyond this, today’s analysis recommends the government introduces an ​“essentials guarantee” which uses the social security system to establish an income floor below which no family can fall.

Notes

The New Economics Foundation is a charitable think tank who are wholly independent of political parties and committed to being transparent about how it is funded.

The research will be available at https://neweconomics.org/2024/06/benefits-debt-deductions-trapping-people-in-poverty-and-debt‑1

Previous NEF research showing that out-of-work benefits are at their lowest level in 40 years can be found at https://​newe​co​nom​ics​.org/​u​p​l​o​a​d​s​/​f​i​l​e​s​/​N​E​F​_​L​i​v​i​n​g​-​i​n​c​o​m​e.pdf

Table 1: The average reduction in UC in Blackpool South is twice that in South West Devon

Reduction in the standard allowance of universal credit (in percent and pounds) for an average family in 2024/​25 as a result of debt deductions, by highest and lowest ranked constituencies

Source: NEF analysis of parliamentary question 203044 and stat-xplore data on the number of households receiving a non-zero UC payment.

Table 2: Full table of constituencies can be download here: https://neweconomics.org/uploads/files/UC-debt-deductions-table‑2.xlsx

Parliamentary questions used for research: 203044, 191730 and 8649.