Universal Credit claimants are left “swimming against a tide of unmanageable repayments” when they are forced to take loans ahead of their first payments, it has been claimed.
The comments come as the government has responded to a damning report by the work and pensions select committee, which raised concerns about claimant debt.
The controversial new welfare system, which combines six benefits payments into one, encourages claimants to take out a loan while they wait for their first payment.
Many people are forced to take out the interest-free loan – called an advance payment – because the first payments of the new benefit take at least five weeks to come through after claimants apply, and in the meantime their existing benefits are stopped.
The loans have to be paid back within 12 months.
The department for work and pensions “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”. Frank Field, chair of the committee, said.
In its recent report on support for childcare costs under Universal Credit the Committee expressed deep alarm at DWP’s suggestion that parents struggling to find the upfront payment for childcare, to enable them to get back into work, should take out a budgeting advance.
The department claimed budgeting advances are “not a loan”, despite the government’s own website stating that they are.
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 serious concerns about DWP’s approach to claimant debt and to recovering debt in its previous report about the new benefit system.
Regardless of how DWP describes them, the advance payments are a debt which must be repaid out of current income going forward, the committee said.
Persistent debt can prevent claimants from finding and staying in work, and the extra costs and pressures of debt can quickly spiral out of control, the committee found.
Yet, as the report noted, debt advice is not routinely offered as part of the service intended to help claimants navigate the transition to Universal Credit.
On Sunday, the committee published the government’s response to that report, alongside an exchange of correspondence on the question of claimant debt.
The DWP asked the Trussell Trust, 11 days before Christmas, to promote advance payments to claimants coming to their network of food banks because they are suffering hardship and hunger during the 5 week wait.
In a letter to the DWP following the request to the food bank charity, Field said he was “very concerned” that DWP did not mention that advances are a loan which must be repaid.
The committee has heard substantial evidence that many people who need to rely on food banks will already be swamped by debt, he said.
The “help” the department is offering would “simply pile another debt on top and add to [households’] misery”.
He added that Citizens Advice has also expressed to the committee in multiple evidence submissions the view that advance payments are simply another form of debt.