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Hardship by design?

How to end unaffordable debt deductions

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The report is based on analysis of budget data of clients on Universal Credit with an overpayment debt. Assessing how appropriate the current DWP deduction rates are – 15% for out of work claimants and 25% for those in-work earning more than £60 a month.

We found that these rates were completely misaligned with the real budgets of our clients, with claimants out of work and on the lowest income in severe financial difficulty.

  • 49% of clients with a tax credit or benefit overpayment debt and no earned income have a negative budget (meaning they do not have sufficient income to meet expenses after budget counselling), with an average monthly budget deficit of -£55.
  • Even for UC recipients with some income from employment, deductions have a high risk of causing hardship: 38% of clients with earnings below the work allowance had a negative budget.

Over two million of the poorest households face the Government dipping into their benefits for unaffordable debt repayments

The report also outlines the impact of deductions during the cost of living crisis. With over £1 billion taken from over a million households to repay non-priority government debt like overpayments and advance payments. We make a number of recommendations to alleviate the current pressure on households and longer term structural changes to the deductions system.

  • Pause deductions for UC advances, tax credit and benefit overpayments at least until benefits are uprated next April
  • End deductions for tax credit and benefit overpayments for claimants without earned income or income below the work allowance except where a detailed affordability assessment has been conducted and claimants consent to these deductions
  • Reduce the maximum rate of deduction for tax credit and benefit overpayment deductions to 5% of the standard allowance, increasing from 0% to this rate incrementally as earnings increase

Suspending unaffordable deductions could return over £100 a month to those most at risk from spiralling prices

We modelled the impact these structural changes could have on our clients and they were significant:

  • Stopping deductions for clients who are out of work leads to up to an estimated 23% fall in the proportion of single claimants aged 25 and over with a negative budget, while for couples over 25 the proportion would fall by nearly a third.
  • Reducing the maximum rate of deduction for overpayment debts to 5% for claimants aged 25 and over with earnings over £1,000 per month would reduce the proportion in this group with a negative budget by nearly a third.

There's no safe rate of benefit deductions for the people on the lowest incomes

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