Universal Credit and Debt

Ruth George Excerpts

Wednesday 5th June 2019 Westminster Hall

[Ruth George (High Peak) (Lab)]

I beg to move,

That this House has considered universal credit and debt.

Universal credit affects a huge proportion of our population already. As of April this year, 2 million people were on universal credit, and in the last three months more than 200,000 extra households each month have started a claim. By the time it is fully rolled out, around 7 million households, comprising around 15 million people, will be on universal credit—almost one quarter of the population and 28% of people under pension age—and around 38% of our children will be growing up in households on universal credit. It will affect a whole generation.

The impact of universal credit is felt not only at an individual, but at a societal level, so it is incredibly important that we get it right. That is why I set up the all-party parliamentary group on universal credit, to collect evidence and make recommendations. I thank all those parliamentarians here today on both sides of the House who have contributed to that very productive group, alongside our colleagues in the Lords, charities and researchers. I must especially mention Holly in my office, who has been running it as a labour of love.

Most of all, I thank the individuals who are claiming universal credit, particularly all those who responded to the social media outreach that I and Parliament have done for this debate, telling us about their often very personal experiences. The amount of money we have affects not just our bank balance, but our ability to look after both our physical health, in terms of affording housing and enough to eat, medication and travel to health appointments, and our mental health, particularly when we get into debt.

[Mr Gregory Campbell (East Londonderry) (DUP)]

I congratulate the hon. Lady on securing the debate. Does she agree that until relatively recently there was a broad political consensus on the need to revise the labyrinth of welfare dependency and the bureaucracy surrounding it, but that that should be done in a way that minimises the impact that she has just been outlining and that many of our constituents are suffering from?

[Ruth George]

I agree; it was a laudable aim, but unfortunately it is not happening in practice, as shown in some of the evidence. That is why I secured this debate.

[Mr Jim Cunningham (Coventry South) (Lab)]

I congratulate my hon. Friend on securing this debate. We have had numerous debates on universal credit, and I have said this before and will say it again: we should call a halt to universal credit, and if it cannot be reformed we should disband it, because people are suffering as a result. We also now have the working poor, including in cities such as Coventry, where last year 20,000 people used food banks. When we think about it, the impact that that is having on people is incredible.

--- Later in debate ---

[Ruth George]

I hope the evidence I will bring today, and the evidence colleagues will bring from their own experiences, will help to make that case without my having to make it explicitly. There are certainly many changes that should be made. The evidence I have heard from people who say that it is not just the amount of money they have on universal credit, but their powerlessness against a system that takes deductions seemingly at random and with no recourse to justice, that leaves them feeling absolutely hopeless and in despair.

One man from Wales told me on social media:

“It is very difficult to manage on universal credit, payments are very low…I’ve had to go without food to have heat and vice versa. This with my health condition has led me into depression & despair at times. Universal credit are always deducting monies eg carers allowance etc which has left me worse off. It’s very difficult to get through to talk to anyone via phone and very often treated as a second class citizen.”

[Christine Jardine (Edinburgh West) (LD)]

The hon. Lady is making an excellent case for changes to universal credit. Pertinent to what she is saying about people being left unable to pay, does she share my concern that 51% of the food parcels that the Salvation Army distributes are to people who come as a result of having insufficient support from the universal credit system? Does she agree that maybe we should put back the money that was taken out of the budget?

[Ruth George]

Absolutely. My local jobcentre also tells me that the major reason why people are seeking support with food parcels is that they simply do not have enough to get by on, often because of the deductions.

A mum from East Anglia told me that she has had to resort to loan sharks, and she almost got involved with a man just so that he could buy some food for her and her daughter. Now she has had letters saying that money will be deducted for her debts. She has lost jobs because she could not afford a bus pass and she has friends who resorted to selling their body for food because of their children.

[Dr Dan Poulter (Central Suffolk and North Ipswich) (Con)]

rose—

[Ellie Reeves (Lewisham West and Penge) (Lab)]

rose—

[Ruth George]

I will go across the House first.

[Dr Poulter]

The hon. Lady is making some good points, and she is right to draw an association between adverse life events, debt and poor mental health. On the issue facing many of the people she is using as examples, who are experiencing difficulties with universal credit, is it not the case that the wait of five weeks to receive universal credit exacerbates debt issues and the challenges facing people in sometimes very difficult circumstances, and that the Government perhaps need to look at that as a priority in helping to improve the system?

[Ruth George]

The hon. Gentleman has pre-empted part of my speech. The five-week wait for payments is doing a tremendous amount of damage, putting people into debt right at the start of their claim.

That is not to say that universal credit has not improved—I am sure we will hear a lot about that from the Minister. I pay credit to the Department for listening, and especially to the current Secretary of State, who has made changes beyond those forced on her by High Court cases. However, there is still an enormous amount to do to help people to get by and feel secure with universal credit.

[Ellie Reeves]

A number of my constituents are living below the poverty line, because that is what their universal credit calculation assesses them as being entitled to. It is not surprising that three quarters of those who are in rent arrears are on universal credit, while only one quarter are not. Does my hon. Friend agree that the way we calculate welfare payments to the most vulnerable must be looked at again?

[Ruth George]

Absolutely. As I will come on to discuss, the problem is not only welfare payments, but the deductions made from those welfare payments. People who are already in poverty are having huge deductions taken from their incomes with almost no recourse to justice.

[Jamie Stone (Caithness, Sutherland and Easter Ross) (LD)]

Will the hon. Lady give way?

[Ruth George]

I will take one final intervention, then I must make progress.

[Jamie Stone]

I thank the hon. Lady for giving way. This is a point that I imagine the hon. Member for Inverness, Nairn, Badenoch and Strathspey (Drew Hendry) will elaborate on, but the Highland Council’s budgets have been hit to the extent of £2.5 million just from dealing with universal credit. That money is money that we could be spending on classroom assistants, who are facing swingeing cuts not of their own making. Should that money not really be repaid to the Highland Council to make up for all this?

[Ruth George]

All councils need an uplift in their budget, but if the Department for Work and Pensions was to give money away, I would say it should go into the pockets of the people who are suffering at the sharpest end of universal credit.

We have already seen four years of a benefits freeze that has cut more than 6% from those benefits. That is on top of the three-year freeze in 2011 and the 1% benefit cap from 2014. On housing, the impact of those freezes, together with limiting local housing allowance to the lowest 30% of rents, means that now tenants in 97% of areas must make up a rent shortfall out of their universal credit. In one in five areas, that shortfall for a family with children in a two-bedroom home is at least £100 month, Shelter has calculated. That is a huge amount taken out of an already low income, but universal credit will mean even more reductions.

With managed migration having been delayed, most people will transfer on to universal credit due to a change in circumstances—anything from having their first baby, losing a job or moving to a different local authority area. Those 5 million or so households are not due to receive any transitional protection if they were better off on legacy benefits. Contrary to what Parliament was promised when the cuts to universal credit were pushed through in 2015 and 2016, most people will immediately be worse off.

Even after the changes to universal credit, the Joseph Rowntree Foundation has calculated that, although 5.6 million people in working households will gain an average of £3,000 a year, 5.1 million working people will lose an average of £2,300, including 1.7 million who are already in poverty. Of non-working households, 1.9 million people will gain an average of £2,000 a year, but 2.6 million people will lose an average of £1,400 a year, with half of those—1.3 million—already in poverty. Overall, even after the changes, 7.5 million people will gain from universal credit, but 7.7 million people will lose out, including 3 million households already in poverty. While the Government may state that more is being spent on universal credit, which may well be correct, that does not change the fact that the majority of people already on very low incomes, many of whom are in poverty, will be worse off.

Even those who are supposed to be better off on universal credit often struggle because of the deductions from their payments. According to yesterday’s written answer from the Minister, who I thank for responding in time for the debate:

“Of all eligible claims to Universal Credit Full Service due a payment in Feb 2019, 57% (840,000 claims) had a deduction.”

An answer to a further parliamentary question showed that an average of 10% of all universal credit is now deducted from people’s claims. Almost everyone seeing deductions took the advance payment introduced to help people get through the minimum five-week wait for their first payment. Some 60% of people take that advance, mainly because rent is payable in advance, whereas universal credit is payable in arrears. That advance has to be paid off over 12 months, so people are paying 13 months’ rent out of 12 months of income. With a system that in 97% of areas does not even give enough money each month for one month’s rent, it is not surprising that people are struggling, and that five-week wait is absolutely part of that.

On top of repayments for advances, another 440,000 households are also repaying at least one other debt for benefit overpayments, social fund loans or other advances. That does not include third-party debts such as rent arrears, utility bills or council tax debt. The Department does not keep data on those debts that it also deducts. I question why not, as it clearly has the data on the deductions being made and should monitor the impact on vulnerable people. Of those 840,000 households seeing deductions, half were of up to 20% of the standard allowance in universal credit, 170,000 were between 21% and 30%, 238,000 were between 31% and 40%, and 13,000 were above 40%.

With 40% of the standard allowance as the current maximum deduction supposed to be permitted under universal credit, that means deductions of £127 a month for a single person’s claim or £200 a month for a couple. Of the 3.3 million couple-parents already losing an average of £2,500 a year under universal credit—more than £200 a month—a majority see deductions on top of those losses of up to another £200 a month, plus their rent top-up of around £100 a month, so many will be £500 a month, or more than £100 a week, worse off.

It is not surprising that we see such an increase in people going to food banks and struggling with debt, like one of my constituents, Gareth, who is struggling to keep his head above water. He suffers from anxiety and depression. His mother died recently and he split from his partner so had to move into his own place and claim universal credit. He had been working as a cleaner but had to give up his job. He was awarded universal credit of £692 a month, including £374 for housing, although the lowest rent he could find is £500 a month, so he has to make up the shortfall of £126 a month. Some £58 a month is being deducted for his advance payment, and £46 a month for an earlier budgeting and crisis loan, leaving him with £588 a month, of which his rent is £500, so he is left with just £20 a week for all his bills and food. He is experiencing extreme poverty, which is obviously impacting on his health.

Those deductions are things he knows about, but many are not. The second highest number of deductions are for tax credit overpayments, and two thirds of people migrating on to universal credit from tax credits are seeing deductions for an overpayment. The Treasury states that £6.9 billion of tax credit overpayments will be transferred on to universal credit. The reduction in the excess earnings limit in one year from £5,000 to just £1,000 in 2012 has meant that constant overpayments are now hard-wired into tax credits, but in many cases these are historical.

Only 29% of that £6.9 billion relates to 2016-17 onwards. More than half relates to between 2011-12 and 2015-16, and 16% is even older. Many people just were not aware of these overpayments and are not given the opportunity to challenge them. Locally, I have the case of Mrs G, who has a disability. She migrated on to universal credit because she had to move into accessible accommodation, which happened to be in the neighbouring local authority. Only after she had claimed was informed that she had tax credit overpayments of around £450 from 2011 and £850 from 2005. She had not claimed tax credits since 2015, and had paid off the only overpayments of which she had been informed over the next two years. She challenged the overpayments through Derbyshire County Council’s welfare rights service, which is marvellous at handling these cases, but was told that she had been informed about them in 2011 and 2006, and as the Inland Revenue had not received a dispute within three months of those letters being sent, the overpayments could not be challenged.

After losing her disability premiums, Mrs G was already £43 a week worse off under universal credit—almost £200 a month. She was having £42 a month deducted to repay her advance payment and was left with only £169 a month. A further £48 a month was then deducted for her tax credit overpayments, which she faces for years to come. Faced with having to live with a serious disability on just £121 a month, and with no one in government prepared to look into her case, the welfare rights service told me that Mrs G’s mental health deteriorated rapidly and that, on new year’s day, she attempted to take her life. Fortunately the attempt did not succeed, and she is now being supported by her GP, but five months later the issue is still not resolved, even with expert advice and her local MP contacted. Mrs G says,

“it’s on my mind all of the time”,

and it is still affecting her health.

The inability to challenge deductions—or even, in some cases, to find out about them—leaves people feeling utterly helpless and either angry or hopeless. People often receive a note on their journal saying:

“We agreed to pay a fine from your universal credit”,

but they are not even told how much the fine is, where it comes from or how to challenge it. I have seen cases of much more than the 40% limit being taken from people’s standard allowance, leaving them with practically nothing to live on. Advisers on the universal credit helpline have been unhelpful and aggressive, even to Citizens Advice and the welfare rights service.

Real examples like those from in and around my constituency, where limited numbers of people are on universal credit, bear out the problems illustrated in those answers to parliamentary questions. They are key drivers for the increase in food bank use and debt and rent arrears, and are a significant reason for the huge increase in depression and anxiety.

The Government must act. It will not necessarily take anything very radical. Many of the actions have already been agreed, but they need to be brought forward and done now. We need to look at the five-week wait, as I think is agreed across the House, and at the very least, as a first step, bring forward the two-week run-on of jobseeker’s allowance, employment and support allowance and income support from July 2020 to July 2019. The maximum 30% cap on deductions needs to apply now, not in October, when another 800,000 people will have applied for universal credit and be suffering 40% reductions. And people suffering hardship should be able to reduce that.

The extended repayment period for advances from 12 months to 16 months should apply now, not in October 2021. Historical tax credit overpayments should be written off, as the Government stated they were doing back in 2011. Later overpayments should be proved and the opportunity given to challenge them properly before they are collected. The benefit freeze needs to be ended and the cap on rents restored at least to the 30th percentile. And the monthly assessment period should be reviewed, as the High Court has stated it should be.

Just the measures that I have listed would be an enormous help for the hundreds of thousands of people—almost 1 million—suffering already under deductions from universal credit. If this is test and learn, those people are the guinea pigs that this Government are experimenting on. The Government can make changes. We in Parliament get a second chance at legislation, but the people who are suffering this system now are left with spiralling debts, to which they can see no end. They are driven by the unresponsive system even to try to take their own life. They do not get a second chance at living a better life. Their children do not get another chance at a childhood not marred by poverty. Another 60,000 families will apply for universal credit next week. That is why it is not just our job but our absolute duty to get it right.

[Several hon. Members rose—]

--- Later in debate ---

[Ruth George]

I called on the Minister to bring forward some of the changes. I do not know whether he understood the waffle that his Department gave him to explain why that will not happen, but I would be very grateful to hear his proper explanation for it.

I thank everyone who has contributed, and the organisations for all their research and briefing. To anyone who is watching who is suffering under universal credit and the deductions that are being made, I say this: get advice, challenge those deductions, and come and see your MP about them. Let us get them sorted.

Motion lapsed (Standing Order No. 10 (6)).