81.People making a claim for Universal Credit have the option of requesting an Advance of their expected monthly award, which must be repaid over a period of up to 12 months, with monthly deductions capped at 30% of the standard allowance. From October 2021, the repayment period will be extended to 24 months, and the deduction cap reduced to 25%. DWP estimates that around 70% of people who receive an Advance take out the maximum entitlement—that is, an amount equivalent to all of their expected award. Will Quince, the Minister for Welfare Delivery, told us that the option of taking out an Advance means that no one needs to wait five weeks for their first payment:
Where we do have a fundamental difference of opinion with a number of stakeholders is that we do not accept that anybody has to wait five weeks for a payment under Universal Credit. That is because an advance of up to 100% of someone’s indicative award is available and that is interest free, repayable over 12 months.
82.The recommendations we have made for new “starter payments” of Universal Credit would mean that far fewer claimants would need to take out an Advance. This chapter examines the evidence we have heard about how Advances have been working in practice, and recommends how they could work in combination with starter payments.
83.Before March 2020 around 60% of new claimants took out an Advance. Since the coronavirus outbreak, the proportion has fallen to around 32%. Organisations have told us that this is likely to be because a larger proportion of the new cohort has recently left work, meaning that they are more likely to have savings to fall back on. In its July 2020 report, Universal Credit: getting to first payment, the National Audit Office (NAO) found that disabled people or people with health conditions and low income households are more likely to request an Advance: 80% of low income households and 67% of people with a disability or health condition had at least one deduction from their first payment.
84.Not everyone takes out an Advance. DWP may refuse a request for an Advance in certain situations—for example, where the claimant has savings they can fall back on or are living with friends or relatives who can support them. On the other hand, some people may choose not to ask for one. Bright Blue, a think tank, interviewed claimants for its report, Helping Hand? Improving Universal Credit, published in March 2019, and found that the most common reason why people did not take out an Advance was nervousness about falling into debt, rather than a lack of need.
85.We heard evidence that Advances, in their current form, help to address some of the problems that people face during the wait for their first payment, especially people who do not have any other source of income. Will Quince, the Minister for Welfare Delivery, told us that, through the Advances system, the Department can get money to people “very quickly, often within 24 hours where they need it”. In the November 2017 Budget, the Government announced welcome improvements that the repayment period for Advances would be extended from six months to a year, and that claimants could request an Advance equivalent to 100% of their estimated award (it was previously capped at 50%). Citizens Advice found that, following the introduction of these changes, the proportion of people it helped who had to go without essentials such as food and heating during the wait fell from 60% to 46%, and that the proportion of people who fell behind on bills fell from 58% to 48%.
86.Despite this, Child Poverty Action Group (CPAG), an anti-poverty charity, said that some households—particularly families including one or more disabled people—are unable to take out an Advance that covers their day-to-day needs. CPAG says that this is because Advances must be repaid over a period of 12 months, with monthly deductions capped at 30% of the standard allowance, meaning that the amount people can take out as an Advance is effectively capped at just over £2100. It argues that families with high housing costs where a member of the household is disabled could easily have costs higher than the maximum amount. A member of the public who responded to our call for evidence said that they were left without enough money to cover the waiting period, even after they had taken out an Advance:
I was given an advance payment of 600 pounds. By the time the rent was paid etc. I had no money left for 4 weeks.
87.Many organisations that we heard from were clear, however, that Advance repayments can create additional hardship further down the line. StepChange, a charity that supports people with problem debt, quoted the experiences of people it supports who had faced hardship because of Advance repayments. These people said:
“Repaying the money back each month left me in great financial difficulty, I’ve had to attend food banks and felt very low as I had to cut back on things for my son.”
“[It] caused my depression to get worse which affected my children. I fell behind on my bills and now have debts being pursued by debt collectors which is causing more stress and anxiety.”
“They [DWP] are deducting about £65 from my monthly benefit to pay back the advance which is leaving me even more short of money. I asked them if they could reduce the monthly repayment amount so that I pay it back over a longer period, but they said they were unable to do that.”
88.StepChange also found that people on Universal Credit are more likely to be in problem debt than people on legacy benefits or the general population (25%, compared with 11% and 8%, respectively). 54% of Universal Credit claimants surveyed by StepChange also had at least one deduction to their award in place, compared to 36% of people on legacy benefits. The Trussell Trust found that being in debt to the DWP was a common problem amongst people referred to food banks. Some 40% of people referred said that their benefit income was subject to deductions; of this group, 80% said that their deduction was repayment of an Advance or other DWP loan. In answer to a written parliamentary question, the Department revealed that in May 2020—at the height of the lockdown—more than 1.6 million claimants (40% of all UC claims) had deductions from their Universal Credit. The average deduction was £60, and the proportion of the deduction relating to advance payments averaged 86% across all parliamentary constituencies.
89.Advance repayments do not exist in a vacuum. Many people on Universal Credit face other deductions to their monthly payment; the Trussell Trust found that, as of May 2019, 440,000 (52%) of people repaying an Advance were also repaying other government debts. The think tank Bright Blue found that a “significant minority” of claimants it interviewed for its Helping Hand? report were in debt before claiming Universal Credit.
90.Although Advance repayment deductions are capped at 30% of the standard allowance per month, not all deductions are subject to a cap. These include Last Resort deductions (such as for rent or fuel arrears to prevent claimants from being evicted or having their fuel disconnected) and benefit sanctions. This effectively means that some claimants are facing monthly deductions that exceed 30% of the standard allowance. Nicholas Timmins, a senior fellow at the Institute for Government, estimates that almost 20% of claimants are in this position. Christians Against Poverty, a charity specialising in debt counselling, shared a case study of a claimant who, after facing multiple deductions to his award, was left with less than £14 per week to spend on basic costs:
He had deductions from his Universal Credit Standard Allowance for rent arrears and an Advance payment, with a budgeting loan stacked for repayment next. He also had gas, electricity and Council Tax arrears and eight other debts totalling over £4,000 to pay. [ … ] As a result of the deductions, he could only afford to spend £13.77 a week on food and little else, aside from basic household bills.
91.In the March 2020 Budget, the Chancellor announced two significant changes to the system of Advance repayments: firstly, that the repayment period would be extended from 12 to 24 months (instead of 16 months as originally planned); and that the monthly cap on deductions would be reduced to 25% of the standard allowance. These changes are scheduled to come into force in October 2021. DWP estimates that 1.3 million people will benefit from the extension to the repayment period.
92.While this announcement was broadly welcomed, some of the organisations we heard from questioned why these changes could not be introduced sooner. The Riverside Group, a housing association, recommended that DWP should bring them forward by six months, to April 2021. When he appeared before the Committee on 15 July, the Minister for Welfare Delivery told us that, although he would like to introduce these changes sooner, he could not promise that this could be delivered:
I would love to be able to deliver the doubling of the time to repay advances ahead of October next year. I would desperately like to do so, but I cannot promise to do so because we do not have the time available, especially because of Covid-19, in the build programme within UC.
93.We wrote to the Minister after the session to ask for more detail about the build programme. In his response, the Minister said that, when considering the schedule of changes to Universal Credit, the Department must consider the overall stability of the service, and that it cannot bring changes forward if there are other priorities that it is committed to delivering. Joshua Reddaway, Director for Work and Pensions, Value for Money, at the NAO, said that the speed at which changes can be introduced depends not just on the availability of staff to implement them, but on the “capacity of the system to absorb change”. The NAO expanded on how the Department makes changes to the Universal Credit system in its report, Universal Credit: getting to first payment:
There is a limit to how many changes the Department can make to the Universal Credit system at any one time without overloading its digital development capacity and front-line teams. To prioritise planned changes, the Department gathers feedback from its staff, external stakeholders and claimants. It then considers the impact of any changes to Universal Credit systems and processes on the timeliness of payment, fraud and error, and cost-efficiency.
94.In its written evidence to our inquiry, DWP says that it takes a “holistic approach” to supporting people on Universal Credit, including through signposting people to other support services where required. The evidence we heard, however, presents a mixed picture of the quality of support on offer for people who are struggling with repayments. StepChange said that many people are not aware of the available support: 42% of people who were surveyed for their report, Problem debt and the social security system, said they did not know that they could discuss repayments with a DWP official. Peter Tutton of StepChange told us that, while some claimants have been able to negotiate lower repayments through DWP, this is not the case for everyone:
Some of our clients will contact DWP and will be able to negotiate lower repayments and deductions, but very often not. There is some help there. It is not that there is none, but it is not necessarily effective and it is not always applied. [ … ] The key point here is all the bits of help that have been talked about today tend to be discretionary. People have to ask for them. If they do ask for them, they do not get them. If we start from the principle that people coming on to Universal Credit are going to be highly financially vulnerable, in debt or at risk of falling into debt, then what you would do is you would set your system up to work with that, rather than work against it. The help would be available. People would not have to ask for it.
95.People who are struggling to repay their Advance can have repayments deferred for three months in exceptional circumstances “that were not foreseen when the Advance was first taken out”; the Department’s guidance for work coaches gives the example of a child being taken into hospital. The decision to grant someone a deferral is at the discretion of their work coach. The Trussell Trust, however, said that although Work Coaches can suspend repayment of Advances for three months, this “appears not to be widely used or communicated to claimants as an option”. In response to a Parliamentary Question in June 2019 on the number of people who have applied for a deferral, DWP said that the information requested “is not centrally collated and could only be supplied at a disproportionate cost to the Department”.
96.In February 2020 the Government announced its intention to introduce a new scheme, Breathing Space, in 2021. The scheme is designed to support people with problem debt by granting them a 60-day ‘breathing space’ period, during which they will not face enforcement action from creditors or interest on their loans. People facing problem debt can also access professional debt advice during this period.
97.The Government has confirmed that public sector debts, including Advances and third-party deductions from Universal Credit, will be covered by the scheme. However, because of IT constraints, they will be included on a “phased basis” from introduction. In its recent report, Collecting Dust, the Centre for Social Justice recommended that Universal Credit-related debts should be included in the scheme from the outset.
98.The Department says that Advance payments are not loans. Minister Will Quince explained this when giving evidence on 15 July:
It is, in effect, an advance of your first indicative award, and it is up to 100% of your indicative award, and it is interest free. It is quite clearly an advance and, therefore, not a loan.
We find the Department’s reasoning on this difficult to follow, and in the course of our inquiry we have reflected on the terminology used to describe Advances. We have also considered whether the Department could usefully learn from good practice in the private sector.
99.DWP’s latest financial statements show that it is owed £992m in Advances. Advances, unlike loans in the consumer credit sector, are not regulated by the Financial Conduct Authority (FCA). Under the FCA’s regulatory framework, lenders in the consumer credit sector should carry out an affordability assessment—consideration of whether the borrower will be able to afford repayments without this having a significant adverse impact on their financial situation—before lending money, so that people do not take on debts that they cannot repay. We asked DWP whether it would be feasible to conduct a similar assessment before allowing people to take out an Advance. Neil Couling told us that this would involve sacrificing the ability to get money to people quickly:
I get where you are coming from, wanting to protect claimants. We will make them very aware that they are going to have to pay this money back, but we are trading speed and immediate response to destitution threats against how long such a process you are talking about is going to take to see through.
100.Charities including StepChange, the Trussell Trust and the Joseph Rowntree Foundation have argued that DWP should adhere more closely to accepted private sector standards on lending. StepChange recommends that DWP should comply with three principles, in line with the FCA’s regulatory framework:
a)accepting industry-standard affordability assessments, adjusting and deferring repayments where appropriate;
b)introducing a single ‘one stop shop’ point of contact for those affected by deductions; and
c)improving communications by providing sufficient notice and clear information about deductions, and signposting to free debt advice.
101.Some organisations have called for DWP to take a more flexible approach to Advance repayments. Iain Porter of the Joseph Rowntree Foundation told us that DWP should take a “more individualised” instead of a “one size fits all” approach. Advances are currently repaid at a set rate per month. It is this lack of flexibility, StepChange argues, that can push people into financial difficulty rather than the level of deductions itself. In a joint briefing with the Trussell Trust, Hardship now or hardship later?, published in 2019, both organisations said:
In the private sector, it’s best practice for consumer credit firms and debt collectors to complete an income assessment of the person and then set repayments at a level that won’t push people into hardship. But that is not how Advance Payments work–deduction levels are set at fixed levels by the DWP and these can be hard to challenge, even if you fall into financial hardship while repaying.
102.The National Audit Office has reported on significant levels of fraud in Universal Credit Advance payments. By December 2019, DWP had detected up to £147m in fraudulent Advance claims, and the NAO identified more claims, suggesting that up to £74m of fraudulent Advances on top of this figure may have been paid between October 2018 and December 2019.
103.People whose Universal Credit award covers their housing costs can request an Alternative Payment Arrangement (APA) where the housing element of their payment is paid directly to their landlord. In contrast, for Advance payments which include the housing element, the whole sum is paid directly to the claimant. We heard that this can lead to an increase in rent arrears, as some claimants use their Advance to cover other essential living expenses, leaving them without enough to cover their housing costs. The Trussell Trust shared a case study of someone in this situation who had been evicted as a result:
Susie took an Advance Payment, but this did not stop her accruing arrears. She found that she could not make ends meet, as there was not enough to pay her rent, bills and Advance Payment repayments. Susie was evicted and she ended up living in her car for two weeks, before moving in with a relative.
104.Hugh Owen of the Riverside Group, a housing association, said that this could be addressed by paying the housing element of the Advance directly to the landlord. We wrote to the Minister asking whether this approach would be feasible. In his response, the Minister said that allowing part of the Advance to be paid directly to landlords “would inevitably make the process more complex and therefore cause delays”. He said that the Department instead opts to make Advances readily available as soon as possible.
105.Advance payments can provide a valuable lifeline to people who might otherwise face going five weeks—or longer—without any income. The changes that DWP has introduced so far, especially allowing people to request Advances equivalent to their entire expected award and extending the repayment period, are welcome. However, there is clear evidence that Advance repayment deductions still leave some people without enough to live on. This leaves claimants facing a difficult choice: five weeks with no income, or the risk of debt and hardship later.
106.Even with starter payments of the kind we have recommended, we anticipate that some claimants would still need to ask for an Advance to cover their immediate costs. But some claimants might no longer need to ask for an Advance, and others would ask for a much smaller Advance than they currently receive. A request for a substantial Advance in these circumstances would be a clear indication that someone is struggling with the transition to Universal Credit. The Department should use this as an opportunity to support these claimants at the earliest possible stage.
107.The Department continues to claim that Advances are not loans, but we find that argument impossible to accept. Advances must be repaid at a set rate, over a set period. The Department risks misleading claimants, and damaging its own credibility, if it insists on denying the obvious fact that Advances are interest free loans. Unlike firms in the consumer credit sector, where the FCA’s guidance stipulates that repayment rates should be set at levels that are affordable, there is no equivalent body that regulates public sector lending. While Advances can be a vital source of income for new claimants waiting for a first payment, we are concerned that some people find that they are unable to afford repayments later on.
108.We recommend that Advances should be renamed “new claim loans”, so that it is clear to claimants that they will need to be repaid. Before a new claim loan is granted in full, the Department should provide personalised budgeting support—when possible, with a face-to-face option—with a full assessment of the claimant’s financial situation and the impact that future repayments of the loan will have on their household finances. We recognise that, for people in acute financial crisis, it may be necessary for the Department to pay part of the loan before this support can be offered.
109.For this group of claimants, the burden of future repayments of Advances is likely to be particularly difficult to bear. Given that benefits broadly provide people with a subsistence level of income, any system that reduces that monthly income, including through repaying an advance, is very likely to cause people difficulty. The Department already plans to extend the repayment period for Advances from 12 to 24 months, and to reduce the cap on deductions from an award of Universal Credit to 25% of the Universal Credit Standard Allowance. But even a 25% cap leaves claimants receiving substantially less than a subsistence level of income. And these changes will not happen until October 2021—some three years after they were first announced. The Minister says that he would love to be able to do this sooner, but cannot because of constraints in the Universal Credit build programme: : a clear case of “computer says no”.
110.The Department should strive to bring in the extension to the repayment period and lowering of the deduction cap sooner than planned, no later than April 2021—recognising the likely increase in the numbers of claimants over this winter. We also recommend that the deduction cap should be reduced further, to 10%, in recognition of the fact that deductions are taken from an income already set at subsistence levels. If this acceleration involves deprioritising other planned changes or developments in the build programme, the Department should set out what these are and provide a revised timescale for their introduction.
111.DWP has capped the deductions that claimants can face from their Universal Credit award at 30%, and yet in some circumstances, such as where a claimant has rent or fuel arrears, or benefit sanctions, DWP can deduct more than this amount. Nick Timmins has estimated that almost one in five of claimants see over 30% of their Universal Credit award deducted to pay off debts. DWP should ensure that claimants never face deductions in excess of the usual cap, and should use the data that it has on “last resort” deductions to help claimants tackle their debt problems without reducing their Universal Credit award further.
112.The Department says that claimants who are struggling can already defer repayments of their Advance for three months. But the evidence we have heard from charities who work with claimants is that this option is not effectively communicated. Without reliable data on how often it is used, it is impossible to know how well this measure is working in practice. The Department should collect and publish data on how many people have requested a deferral of their Advance repayments, and how many of these requests were granted. It should also ensure that work coaches are proactively informing claimants of this option both at the time of their claim and during the repayment period. This should form part of the personal budgeting support we have recommended.
113.We welcome the announcement of the Breathing Space scheme, which is scheduled to be introduced next year, and the Government’s confirmation that Advances in Universal Credit will be covered by the scheme. We find it disappointing, however, that debts in Universal Credit will be “phased in” over time rather than introduced straight away. We recommend that DWP works with HM Treasury to address any technical barriers in order to ensure that Advances are included in the scheme from its launch, so that Universal Credit claimants can benefit from the support it offers straight away.
114.Some people in financial distress during the wait for their first payment can face a difficult choice between using their Advance to pay their housing costs, or to cover other essential costs, such as food or heating. No one should find themselves in arrears—or facing eviction—during this time. We recommend that anyone claiming an Advance should be given the option, at the outset, of having the housing element of the Advance paid directly to their landlord. This would ensure that claimants’ housing costs are covered during the wait for their first payment, and that they will not face the risk of falling into arrears or eviction as a result.
115.We recommend that vulnerable claimants or claimants with specific needs are prioritised for having the housing element of their Advance paid directly to their landlord. This could include people with learning disabilities, people with mental illness, people who have previously been homeless, or people with drug or alcohol addiction.
79 PQ 2017–19 Session
81 from the Permanent Secretary to the Chair, dated 3 April 2020
82 DWP, , last updated 30 June 2020. This figure reflects the proportion of new UC claimants from 16 March to 23 June who received an Advance (the total number of new claims during this period stands at 3.2 million)
83 National Audit Office, , July 2020, p9
84 DWP, , last updated 1 April 2020
85 Bright Blue, , March 2019, p62
87 Citizens Advice ()
88 The maximum rate of the standard allowance in Universal Credit is £594.04 (for a couple where both people are over 25). See DWP, , accessed 1 September 2020.
89 CPAG ()
90 Name withheld ()
91 StepChange ()
92 StepChange, , January 2020, p7
93 The Trussell Trust, , November 2019, p70
94 PQ , answered on 17 September 2020
95 The Trussell Trust ()
96 Bright Blue, , March 2019, p61
97 Nicholas Timmins, , February 2020, p13
98 Christians Against Poverty ()
99 from the Minister for Welfare Delivery dated 27 August 2020
100 The Riverside Group ()
102 from the Minister for Welfare Delivery dated 27 August 2020
104 National Audit Office, , July 2020, p10
105 DWP ()
106 StepChange, , January 2020, p7
108 from the Minister for Welfare Delivery, dated 27 August 2020
109 The Trussell Trust ()
110 PQ , Session 2017–19
111 HM Treasury, , 6 February 2020
112 HM Treasury, , June 2019, p12
113 Centre for Social Justice, , April 2020, p65
116 StepChange ()
118 StepChange and the Trussell Trust, , June 2019, p7
119 The Riverside Group ()
120 Trussell Trust ()
122 from the Minister for Welfare Delivery dated 27 August 2020
Published: 19 October 2020