Universal credit fuels the debt problems of low-income applicants, forcing many into destitution and causing others to turn to loan sharks for money for basic items such as food, clothing and heating, a prominent charity claimed.
StepChange, Britain’s largest debt charity, said problems with the design of universal credit – especially the five-week wait for a first benefit payment – made it more difficult for them to manage their money. its financially vulnerable clients.
He called for significant changes in the design of universal credit to make it fairer, more flexible and more generous to the poorest applicants, nearly half of whom had taken out loans to pay for basic necessities over the course of the last year.
A quarter of its customers benefiting from universal credit were in a situation of debt problem, three times the rate observed in the general population and nearly twice the rate of applicants for older “inherited” allowances, a- he declared.
The majority of its customers struggle to make ends meet every month – just 6% said they always stayed on budget and 46% said they always ended the month in the red. More than a third had used food banks or sought help from charities or local churches.
“We already knew that too many people experience hardship and misery because of the problems with the universal credit system. What is new is the evidence of how universal credit actively exacerbates debt problems, more than the legacy benefit system, ”said Peter Tutton, Policy Officer at StepChange.
He urged ministers to do more to protect vulnerable claimants: “Sending people into the arms of loan sharks and worsening the debt situation at a time when people need help the most, absolutely cannot be done. what is social security for. “
Charity criticizes the early loan scheme introduced by the Department of Work and Pensions (DWP) as a way to help penniless new applicants survive the much-criticized 35-day wait for an initial benefit payment – more than twice as long as the typical wait for payment under the old benefit system.
The wait, intended to accustom providers to the monthly payments that are the norm in the working world of the middle classes, has taken its toll on people used to being paid weekly or fortnightly, especially when they do not. ‘have no savings to fall back on. .
Although ministers argue that the loans helped mitigate the negative impact of the wait, StepChange found that the strict repayment terms – which deduct up to a third of the benefit each month for a year – transformed a short-term income shock to clients in a long-term one, with half struggling to cope as a result.
Customers struggled even more when DWP loan repayments were combined with deductions for tax credit overpayments and municipal tax debts. Claimants were often unaware that deductions would be made until they received reduced benefits. The deductions were at fixed rates, regardless of affordability, often happening without explanation.
When asked how they cope with benefit deductions, StepChange customers were the most likely to cut back on food or heat or seek help from friends and family. Half said the deductions caused them to fall behind on debt repayment. One in ten people said they took loans from loan sharks.
Commercial credit companies would not be allowed to operate a universal credit-type deduction scheme, StepChange said: “As it stands, the social security system would not meet basic regulatory requirements for credit companies. consumption to treat customers fairly. “
A DWP spokesperson said: “Claimants can be paid urgently if they need it and 95% of payments are made in full and on time. We have changed the system so that people can receive even more money in the first two weeks than under the old system, and alternative homeowner payment terms can already be made for applicants who are struggling to pay. their rent.
More than half of StepChange clients who claimed social security met the definition of destitution, meaning they had deprived themselves of two or more essentials in the past month due to a lack of money. The main thing is to eat two meals a day, have clothes suitable for the weather, and be able to purchase basic toiletries.
About 2 million people benefit from universal credit, which combines six working-age benefits into one monthly payment. More than 6 million people will benefit from it when it is fully deployed in 2023.