William Eichler 14 September 2017

Benefit deductions under UC risk pushing people into debt, charity warns

The increase in benefit deductions with the roll-out of Universal Credit (UC) risks pushing people ‘deeper into debt’, charity warns.

Under the current system, the Department for Work and Pensions (DWP) can deduct money from benefits in order to cover arrears payments due to third parties, such as a council or utility company.

The amount deducted under what are known as ‘third party deductions’ (TPD) is paid directly to a creditor until the debt is cleared. At present, it is set by the DWP at £3.70 per bill, per week — a figure also sometimes used by creditors outside the TPD process.

However, according to StepChange Debt Charity, under UC the amounts that can be deducted are ‘significantly higher’ and this will only lead to deepening existing financial problems for benefit recipients.

A Freedom of Information (FoI) request by the charity has revealed the current scale of TPD use.

There are 1.1 million deductions occurring in a typical month. Just over a quarter (26.5%) of the charity’s clients reported in a survey they had had money deducted from benefits to go towards arrears, and those in a vulnerable position were even more likely (28.6%) to be subject to the practice.

Of those who had such deductions, 71% of respondents said that it had caused their family hardship, 40% reported falling behind on essential household costs and a quarter said they found it difficult to pay for food, clothing and heating.

Where cutting back spending was not viable, 1 in 5 of the charity’s clients with TPDs said they had to resort to credit in order to keep on top of essential bills.

The charity recommends that a new minimum level of £1 deductions should be created.

‘Direct benefit deductions straddle the line between good and bad debt collection, offering a way of repaying debt and managing bills for many, while exacerbating problem debt for those who can least afford it,’ said Mike O’Connor, chief executive of StepChange.

‘With the ongoing roll out of Universal Credit raising the amounts that can be deducted from benefits, the Department for Work and Pensions as well as creditors must take steps to ensure deductions do not worsen problem debt for the most vulnerable.

‘Third party deductions should only be used when they are affordable and helpful to individuals, allowing them to keep up with essential bills. Regulators must provide guidance to firms on supporting vulnerable clients and steer them away from using deduction rates as a benchmark for debt collection.’

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