In its recent report on support for childcare costs under Universal Credit, the Work and Pensions Select Committee expressed anger and alarm at the suggestion that advance Universal Credit payments are “not a loan”.
The Department for Work and Pensions (DWP) crudely suggested that parents struggling to find the upfront payment for childcare, to enable them to get back into work, should take out a “budgeting advance”, claiming the advances “not a loan”, despite the Government’s own website stating that they are.
Chair of the Committee Frank Field said: “It is simply irresponsible of Government to suggest that the way around this policy’s inherent problems is for struggling, striving parents to take on more debt – still more so to claim, untruthfully, that it is not a debt at all. It clearly is.”
The Committee had already raised concerns about the DWP’s approach to claimant debt and to recovering debt in a previous report.
The cross-party group of MPs argued that regardless of how the DWP describes them, the use of advance payments to tide people over the initial 5 week wait for their first Universal Credit payment are a debt which must be repaid.
MPs said this persistent debt can prevent claimants from finding and staying in work, and can quickly spiral into a cycle on ongoing debt that is extremely difficult to escape.
The also argued that the DWP’s aggressive approach to collecting debts can compound matters further, leaving claimants “swimming against a tide of unmanageable repayments” which “pile debt upon debt, trapping people in a downward spiral of debt and hardship”.
In its response to the concerns raised by the Committee, the DWP still fail to mention that advances are a loan which must be repaid by deducting money from future Universal Credit payments, much to the dismay of the Committee chair Frank Field.
Mr Field said: “I contend that the ‘help’ the Department is offering would ‘simply pile another debt on top and add to [households’] misery’.
“I am aware that Citizens Advice has also expressed to us in multiple evidence submissions the view that Advance Payments are simply another form of debt.”
Citizen’s Advice said that “whether or not people understand the money has to be paid back, there are widespread affordability issues with repayments causing significant hardship well into claim”.
The charity continued: “It has been clear for some time that people are struggling financially when they make a UC claim – this means that the first payment has to be made as soon as possible and in a way that does not create hardship down the road.
“As we understand it, not classifying advances as loans also means that people struggling with them will not be able to seek protection through the ‘Breathing Space’ or Statutory Debt Management Plans, which they will be able to with other debts.”
In a letter to Neil Couling CBE, Director General of the Universal Credit Programme, the UK’s largest foodbank network Trussell Trust mirrored concerns raised by MPs.
“We welcome the fact that the DWP recognises that the five-week wait can create significant financial hardship for households”, said Trussell Trust.
“However, we do not believe that Advance Payments are an effective solution – they simply stretch a first payment over an even longer period of time, leaving people without the necessary income to meet living costs.
“As long as people are expected to live either without income or with reduced income (through advance repayments), we are likely to see people still forced to use foodbanks to make ends meet.”