Debt deductions – mainly due to the loans parents have to take out to cover the five-week wait for their first Universal Credit payment – mean families are losing an average of £73 a month in the midst of a cost of living crisis.
Families are losing out on an average of £73 a month due to debt deductions from their Universal Credit, with new figures showing families in the North East and North West are most affected.
The most common reason for debt deductions is loans taken out to cover the five-week wait for their first payment. Child Poverty Action Group and the North East Child Poverty Commission are calling for changes to universal credit and benefit deductions rules in light of the data which shows the Government is clawing back over £80 million a month as a result. Many UC claimants are families where at least one parent is working – the employment rate for people on Universal Credit was 41% in June 2022.
The Child Poverty Action Group says the number of children living in households with debt deductions being taken from their UC has risen to more than 2.2 million – making up more than half (53%) of all children in households receiving Universal Credit. In the hardest hit parts of the country, the proportion of all children in UC households whose parents or carers are subject to deductions is more than two thirds. The worst affected local areas are in the North East and North West of England, where the proportion is as high as 68% in the Middlesbrough, Middlesbrough South and East Cleveland, Redcar, Blackpool South and Knowsley constituencies.
Deductions can be taken from benefits for a range of debts, including to utility companies, but most commonly they are for the repayment of a UC advance – a loan which many families have to take out to survive the five-week wait for a first UC payment. This represents £34.7 million a month – or 43% – of all deductions clawed back from households with children.
In the North East, which now has the highest child poverty rate of anywhere in the country, UC advance repayments account for 50% of all deductions.
The Child Poverty Action Group and the North East Child Poverty Commission are calling for an end to the five-week wait for a first UC payment; a reduction in the maximum rate at which deductions can be taken for repayment of a government debt to 5% of a claimant’s benefit; and a reduction in the overall cap on deductions (for any type of debt) to 15% (from the current 25%).
Alison Garnham, Chief Executive of Child Poverty Action Group, said: “With so many families struggling to keep their heads above water as prices soar, every pound deducted by the Government from universal credit is a pound less for food, energy and other household essentials. Deductions are forcing families to live on less than they are entitled to, leaving more than two million children with much less than they need. They are making a dire situation for low-income parents even worse. Ministers must lower the maximum rate at which deductions can be taken and scrap the unfair five-week wait for UC which is pushing already hard-pressed families into debt.”