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Pause deductions from benefits to ease cost of living crisis, MPs say

27 July 2022

With inflation set to peak at its highest level for 40 years, a  new report from the cross-party Work and Pensions Committee highlights how  deductions from benefits are pushing some people into hardship and leading them to depend on foodbanks.

Deductions from benefits are calculated as a percentage of the ‘standard allowance’ - the basic amount paid to all claimants. They can be taken to recover money that is owed for a variety of debts and Advances. These include:

  • Advance payments, which allow claimants to receive up to 100% of their universal credit amount during the five-week wait for the first payment.
  • Benefit overpayments (either from universal credit or legacy benefits such as employment and support allowance)
  • Budgeting and crisis loan repayments
  • Third-party debts (for example, for rent, utilities, and council tax)

The cross-party group of MPs call on the Department of Work and Pensions (DWP) to pause the deductions for debts owed to the Government: “The Government has urged creditors to accept reduced monthly payments or write off debts, but isn’t following its own advice.

We recommend that deductions are paused, and then only restored gradually as the rate of inflation reduces, or when benefits have been uprated to reflect the current rate of inflation.

“If the Government is not willing to pause deductions then it must increase awareness of existing options such as short-term pauses, and ensure that those who are struggling can get accessible and practical debt advice.”

The Committee welcomes the Government's one-off cost of living measures package especially for combining universal support with more targeted payments delivered through the benefits system, and including those on legacy benefits.

However, the MPs highlight concerns that the current cost of living crisis, caused by rising energy, fuel and food costs, has exposed longer standing problems with the adequacy of the social security system.

As a result, the report urges the Government to limit the use of one-off payments and prioritise other options, with regular, predictable income better for households trying to manage a budget.

The Committee’s other key findings and recommendations include:

Uprating social security

The systems that legacy benefits run on are not fit for purpose and it is disappointing that the DWP has not adapted its IT systems to allow for uprating to respond to changes in the economic context.

The April 2022 rise, when inflation was already 9%, was based on the CPI rate from September 2021, which was 3.1%, causing a real-terms fall in income.

The DWP must work to increase the speed with which changes can be made to legacy benefit and state pension rates.

The DWP should reduce the length of time between the inflation reference period and the uprating implementation date to allow more flexibility in the system, preferably to the previous quarter end or more recent if possible.

Benefit cap

The decision to exempt cost of living payments from the benefit cap suggests the Government knows the cap is set too low to effectively cover households’ now spiralling cost of living.

The benefit cap should be reviewed urgently - and certainly no later than the end of 2022 - to ensure it is in line with average household incomes and increasing rent/energy/food costs.

Local Housing Allowance should be increased to support people on low incomes to access secure, affordable housing in their local area.

Pension Credit

With around 850,000 eligible households not claiming Pension Credit, the Government should work with stakeholders to develop a written strategy to increase take-up by the end of the year. 

Ken Butler, DR UK’s Welfare Rights and Policy Adviser said: “The Committee rightly highlight the limitations of the Government’s one-off cost of living package.

While a useful step would clearly be to halt deductions, the fundamental problem of the underlying inadequacy of benefit levels remains unaddressed. An increase in line with the true level of inflation should be made urgently.”

The Work and Pensions Committee Cost of Living report is available from parliament.uk.

Also available from parliament.uk are:

See also our related news story Disability Poverty Campaign Group launched