5 minute read
The most vulnerable households are still being forced to repay their debts at a frantic pace.
With inflation at 9.1%, the government has rightly identified that poorer families need more help than wealthier ones to manage the cost of living crisis. The cost of living payment of £650 for households on means-tested benefits is extremely welcome and timely.
Last month, I called on the government to demonstrate that it had not forgotten low-income families, and I am reassured that it now understands the magnitude of the challenges families face. But the job is not done – there is something else the Chancellor needs to address urgently, which is quietly causing great difficulty in these difficult times.
Nearly half of those on Universal Credit have money withdrawn from their social security support by the government each month to pay off their debts to central government and other creditors such as councils or businesses of public services. For some, this can represent up to a quarter of their income.
Being forced to repay these debts at exorbitant rates, when the support is most needed, leaves many households without enough to cover the essentials – often, ironically, forcing them into more debt and into the hands of lenders. on salary.
A survey released today by the Joseph Rowntree Foundation found that soaring prices and bills are already having a big impact on low-income households, and families have fallen behind on payments, such as rent and energy bills, averaging £1,600. Around 7million households – the equivalent of all families in the north of England – either lacked essentials like heating, toiletries or showers this year, or didn’t have enough money to feed last month.
In addition, 1.3 million low-income households (11%) used the credit to cover their basic needs this year. Many are indebted to high-interest lenders like home loans and loan sharks, or buy now and pay later. These can plunge families into a spiral of debt, and it is not right for the government to add to it.
The data I obtained from the DWP revealed that it is disproportionately children and people who are ill or disabled who are most likely to have their child support deducted. Furthermore, while on average households repay around 15% of their basic Universal Credit ‘standard allowance’ (which would mean a deduction of £50 per month for a single person aged 25 or over), nearly half of households benefiting from deductions (47%) lose more than a fifth of their basic allowance.
This would mean, for example, a deduction of £24 per week for a couple. It is a vital support that these households cannot afford to lose. The Lloyds Bank Foundation described these deductions as “puzzling, unmanageable and causing people to experience hardship, often through no fault of their own”, leading to poverty that our social security system should be there to prevent.
For more than a million households, these deductions are used to repay debts to DWP for “advances”, often taken from DWP by households to cover the time it takes to wait for the first payment (a minimum of 5 weeks). Some families have debts for tax credit overpayments, often for many years.
Organizations such as the Center for Social Justice have suggested that tax credit overpayment debt that dates back more than three years should be forgiven. It seems more than fair that families, if need be, should not be forced to pay for poor administration by HMRC many years later, especially as they often ignore these debts before starting a claim.
However, the main problem here is the totally unnecessarily burdensome approach to debt collection by the government. We imprison people in poverty when we want to help them get back on their feet.
The DWP has taken a step in the right direction, reducing the maximum refunds that can be taken from benefit payments from a whopping 40% of the standard UC allowance to 25%. This is progress, but the reality is that the government is still automatically deducting aid at totally unaffordable rates, while forcing private companies to much higher standards, which requires taking into account the affordability of loans and repayments.
The solution is simple. First, the government should never take more than 5% of anyone’s standard allowance each month to pay off debt owed to DWP or HMRC. It can afford to wait a bit longer to allow households to repay affordably – reimbursing the government shouldn’t cause people to take on more debt. Then, the maximum deduction limit on the total of all debts due should drop from 25% to 15% of the standard allowance. In this way, the money is reimbursed, but without the households losing much of the assistance they need.
This difficult time rightly highlights a problem that has gone on for far too long and the government has an opportunity to address it. This is an affordable and simple change that would have a huge impact on those at the height of this crisis.
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