Universal Credit and Debt

Chris Stephens Excerpts

Wednesday 5th June 2019 Westminster Hall

[Chris Stephens (Glasgow South West) (SNP)]

It is a pleasure to see you in the Chair, Sir Henry.

This debate is in stark contrast to the advertisements for universal credit that we see in certain newspapers. Those adverts should not include a DWP or universal credit logo; those advertisements would not look out of place in an episode of “Jackanory”. As a constituent pointed out to me yesterday, one advertisement mentioned the advance payment, but did not say it was a loan. Does that advance come in wrapping paper and ribbon? The advance payment is a loan, and the Government cannot keep denying that or saying that it is something else. That loan is adding to universal credit debt, as is the five-week wait. As has been said, many of those leaving work were paid weekly or fortnightly, and they then have to wait five weeks. People are refusing the advance because it is a loan.

Some 60% of those with debt reductions are not getting the help they need from creditors, so they are borrowing more money. Those with deductions on universal credit are becoming more reliant on foodbanks, and Scottish Welfare Fund crisis grants are increasing all the time as a result. Some 40% of those with deductions are also behind with other household bills, such as food or fuel—it is a circle. My great fear is that the Government are not following Cabinet Office guidelines on debt collection, and that this is become a loan shark’s charter. This is a serious issue, and I hope that the Minister and his Department will get a grip on how they deal with debts and universal credit.

--- Later in debate ---

[Alok Sharma]

Also, individuals will receive that money as an advance to their universal credit payment, so they will receive 13 payments over a 12-month period. I make it absolutely clear once again that, as I hope colleagues will acknowledge, these are interest-free advances. Of course, from October this year, the Government will reduce the maximum rate—

[Chris Stephens]

Will the Minister give way?

[Alok Sharma]

I will not, as there is quite a lot to get through.

From this October, the Government will reduce the maximum rate at which deductions can be made from a universal credit award from 40% to 30% of the standard allowance. By the end of 2019-20, it is forecast that around 290,000 universal credit households will have had deductions reduced, by an average of £295 over the year. It is already possible to extend the period over which advances are repaid to 15 months in certain circumstances, and of course, as Members have acknowledged, from October 2021, the maximum period will be extended to 16 months for all claimants.

One issue not touched on in the debate was payment timeliness, but it is worth pointing out that it has been raised in previous debates, certainly during my time as a Minister. Payment timeliness has improved significantly. We now pay around 85% of new claimants of universal credit in full on time. In addition, 95% of claimants are paid in full within five weeks of their payment due date. If there are delays in making the first payment, that can be due to outstanding verification issues, such as the need to provide bank statements or proof of rent. It can also be due to a claimant not signing their claimant commitment. For ongoing claims, payment timeliness is around 98%.

The shadow Minister, the hon. Member for Weaver Vale (Mike Amesbury), raised the issue of employment. The whole point of simplifying the welfare system is to remove the cliff edges and the disincentives to take on work and extra hours that existed under the legacy benefit system. We now offer claimants one-to-one support to help them to move into work.

I hope that colleagues will acknowledge that we are seeing record rates of employment, month after month. The shadow Minister talked about zero-hours contracts, but he will know that less than 3% of people in employment in the UK are on zero-hours contracts. That figure has fallen this year. Indeed, those on zero-hours contracts are doing about 24 hours of work a week on average.

We have recognised that we need to provide a consistently high level of support to those who may have difficulties in making a universal credit claim. That is why we announced our partnership with Citizens Advice and Citizens Advice Scotland, which are now funded to provide the “help to claim” service for claimants.

In the past, a number of colleagues have spoken about debt advice. They will know that debt advice is now fully funded by the financial services levy, and that service delivery is commissioned by the Money and Pensions Service, which was launched in January this year. In 2019-20, MaPS will provide around 560,000 sessions of debt advice in England. It is also worth noting that in addition to the funding that Citizens Advice receives for the “help to claim” service, it will, like other organisations, receive additional funding from MaPS to provide debt advice.

A number of colleagues raised the issue of rent arrears. I point out that a report published in July 2018 by the National Federation of ALMOs, or arms-length management organisations, showed that over three quarters of their tenants who had started claiming universal credit were already behind with their rent prior to commencing their claim. Also, research that we have carried out shows that the proportion of universal credit claimants who were in arrears at the start of their claim fell by a third after four months. In the universal credit full service claimant survey, which was published by the DWP in June 2018, 84% of claimants said that they felt confident about managing and paying their housing costs.

My hon. Friend the Member for Gloucester raised the issue of rent arrears and asked what further work we were doing on it. I can confirm that we are carrying out further analysis with a number of housing providers to investigate and understand the true level of rent arrears among their tenants, and what is causing those arrears. Of course, when we have that information, we will publish it.

A number of colleagues raised the issue of tax credit debt. Her Majesty’s Revenue and Customs already seeks to recover overpayments of tax credit debts. When a claimant moves on to universal credit, any outstanding debt is transferred to the DWP for recovery. This does not include debt that is subject to ongoing disputes or appeals, and HMRC tells the claimant the amount of debt that is being transferred to the DWP for recovery. HMRC and the DWP continue to work closely to improve the claimant journey. This includes having a joint inquiry team to handle any issues that tax credit customers might experience during their move to universal credit. Of course, if claimants are struggling with the rate of repayment applied, they can ask the Department to review that rate.

A large number of points were made during the debate, so I say to hon. Members that if they want to meet me separately to discuss any points in more detail, I am very happy to do that, or they can write to me. However, in the remaining couple of minutes that I have, I will try to cover off some of the points made in the debate.

On the discussion about poverty, I point out that income inequality and absolute poverty are lower now than in 2010, and indeed the number of children—