Mums facing large debts – with tax credit overpayments one reason

workingmums.co.uk’s annual survey highlights the plight of families in debt, with many facing big bills linked to tax credit overpayment, amid calls for the system to be made more humane.

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Marie Morris* hasn’t done a proper shop for weeks and she doesn’t always have breakfast or lunch at work.

The single mum of three knows things will get worse rather than better. She has recently increased her hours, but that wasn’t an easy decision because she was worried about leaving the safety net of Universal Credit when it came to paying the rent.

She now works 35 hours a week as an administrator. Before that she has always worked term time to fit in with her children, now aged 27, 22 and 12, doing jobs such as cleaning in schools and supervising school lunches. She says she now has the guilt of not being around as much for her youngest, but “needs must”.

She gets no help from anyone apart from her daughter who still lives at home. Asked how she will face the winter, she says: “I honestly don’t know and it is worrying me greatly. I already owe utilities costs of over £500 and have debt collectors calling me.”

Like a significant number of parents who took part in workingmums.co.uk annual survey, she is also paying back an overpayment of her tax credits. Her overpayment is £10k and she says the amount has previously been taken out of her Universal Credit with no discussion or warning. She says: “I have many sleepless, stressed nights.”

Tax credit repayment

A 2021 report from the debt charity StepChange found 98% of the clients it surveyed struggled to cover essentials because of the deductions they faced for tax credit overpayment, with 59% being forced to borrow money to make up this shortfall. It says it is vital that the Department for Work and Pensions’ deductions system catches up with best practice seen in other sectors – particularly given that the circumstances of the people subject to deductions mean that DWP “arguably cannot safely use its current approach without the risk of pushing many of those receiving support into greater hardship”.

The report, which calls for a government debt management bill, recommends that DWP should use data to assess affordability before determining the rate of repayment and that the maximum deduction for tax credit overpayments should be reduced to 5% and there should be a new minimum deduction of a £1 token payment. It also calls for tax credit overpayment debts over six years old to be written off and for debts that will take over 10 years to repay should be written down. And it says that vulnerabilities should be proactively identified using proxy data held by DWP and other departments, with data sharing powers used to improve communications about tax credit overpayments.

Tax credit calculations have changed significantly in the last few years and the system is very complicated for those trying to negotiate it. Organisations such as Citizens Advice and Revenue Benefits have attempted to explain the system which shows how easy it is for overpayment to occur.

The number of overpayments and underpayments of tax credits was falling before the pandemic, which is attributed to the move from legacy benefits to Universal Credit. Between 2018/19 and 2019/20 the number of ‘underpaid awards’ fell from 580,000 to 404,000 (down 30%) and the number of ‘overpaid awards’ fell from 1,357,000 to 1,098,000 (down 19%) while the number of awards which were neither overpaid nor underpaid fell from 2,040,000 to 1,586,000 (a fall of 22%).

That still leaves a significant number of people like Marie who may be in tax credit debt on top of other debts as they face the winter. workingmums.co.uk’s annual survey shows nearly half [49%] of mums have debts from one to £20K. One in 10 is shouldering debts of over £20K. Ninety per cent of mums in work have not had a salary rise in line with inflation.

A survey published today by the Food Foundation shows millions have been forced to skip meals or go a day without eating since the cost of living crisis began, with nearly one in five low-income families experiencing food insecurity in September. The Federation is calling for stronger measures to protect vulnerable households, such as ensuring benefits rise in line with inflation and extending free school meals to more children.

Meanwhile, a TUC survey of 10,000 people has found 14% of people across the UK are having to skip meals or go without food to make ends meet, although in nearly 50 (47) parliamentary constituencies this number rises to 1 in 5 (20%) or above.

The survey finds that Birmingham Ladywood has the highest (29%) number of constituents having to skip meals or miss out on food, followed by Dundee West (27%), Glasgow (24%) and Rhondda (24%). In the Cities of London and Westminster – home to Parliament and Downing Street – well over a fifth (23%) of local people are missing out on meals and food. The TUC says the proportion of people across the UK skipping meals is the same for people in work and people out of work (14%).

*Not her real name.