The Government’s flawed Universal Credit system is pushing a worrying number of people into debt and destitution, forcing many to turn to loan sharks and food banks, according to a new report from a leading UK debt advice charity.
The report, Problem debt and the social security system, from the StepChange Debt Charity, reveals that over half (52%) of the charity’s clients who are in receipt of welfare support have gone without two or more basic essentials in the past month, and 27% have recently used a food bank.
Step Change also reports that 10% of the charity’s clients questioned in the study admitted to accepting money from loan sharks.
In total, 43% had relied on credit to pay for essentials over the past year, the charity says.
Common causes of problems include benefit delays and errors, unaffordable deductions from benefits to repay debt, and the minimum five-week wait for an initial Universal Credit payment.
National polling shows that 25% of those receiving Universal Credit are in problem debt, three times the national average among the general population and almost double that for people still in receipt of legacy benefits.
StepChange is calling on the government to “debt proof” Universal Credit through a numbers of much-needed reforms and fixes. These are:
- Ending the five-week wait
- Minimising perverse fluctuations in payments by introducing an annual disregard for changes in income
- Allowing people to choose whether to receive their support monthly or more frequently
- Reinstating paying housing support direct to the landlord as the default option
- Overhauling the system of deductions to repay debt to ensure that deductions are only made when they are affordable and in the best interests of claimants
- Introducing discretionary hardship payments for those who cannot afford to repay a budgeting advance.
The charity has also called on ministers to reinstate the link between the value of working age benefits and the cost of living.
StepChange Debt Charity head of policy Peter Tutton said: “We already knew that too many people are experiencing hardship and misery through problems with the Universal Credit system.
“What is new is the evidence of exactly how Universal Credit actively worsens debt problems, more so than the legacy benefits system.
“Sending people into the arms of loan sharks, and making a debt situation worse at the very time when people most need help, cannot possibly be what social security is for. It’s time to put these problems right.
“Elsewhere the government is doing good work to help people struggling with debt, with the new Breathing Space and statutory debt repayment plan schemes offering hope of real progress.
“But the goal of improving the financial resilience and inclusion of households is at risk of unravelling because of serious and avoidable problems in the welfare system.
“There is an urgent need to rethink the way that Universal Credit and legacy benefits can help people recover from financial difficulties instead of making those problems worse.”