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Universal Credit ‘worsens debt problems and drives people to loan sharks’

Debt charity StepChange has warned that urgent reform is needed to fix flaws in the controversial benefits system

Universal Credit has been slammed for “driving people into the arms of loan sharks” following the release of leading debt charity StepChange’s research into problem debt.

The charity has pleaded with the government to urgently reform the controversial benefits system to fix design flaws that are driving people to destitution.

That’s the case for more than half of the charity’s clients who have gone without two or more basic essentials in the past month, according to their new report ‘Problem debt and the social security system’.

A further 27 per cent had recently visited a foodbank, while 10 per cent of clients surveyed in national polling admitted they had been forced to use a loan shark or turn to high-cost credit to make ends meet when social security let them down.

In total, 43 per cent of clients receiving benefits had used credit to pay for essentials over the past year, which played a key role in the development of further debt problems. A quarter of those receiving Universal Credit are in problem debt – three times the rate among the general population and almost double those still receiving legacy benefits.


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The reasons behind debt issues are a familiar story – StepChange cited delays and errors, unaffordable deductions from benefits to repay debt and design features of Universal Credit including the five-week wait and unpredictable swings in payments.

The charity argues that Universal Credit is not fulfilling the role of the social security system. Rather than supporting financial resilience and recovery from problem debt, the present system is undermining resilience. StepChange also warned that debt collection practices through the social security system would fail to meet basic regulatory standard required of consumer credit firms.

Head of policy Peter Tutton has called for short-term changes to debt-proof Universal Credit, including the familiar pleas to end the five-week wait, minimise pay fluctuations and allowing people to receive their support monthly or on a more frequent basis.

“We already knew that too many people are experiencing hardship and misery through problems with the Universal Credit system,” said Tutton. “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.”

The Joseph Rowntree Foundation has given StepChange its support – echoing pleas for reform.

Iain Porter, JRF’s policy and partnerships manager, said: “Over the course of this Parliament, millions of people will be moving onto Universal Credit, making it one of the Government’s biggest policy reforms. While the original principles behind Universal Credit are positive, this research reinforces the need for significant reforms to the system if it is to be an effective force in solving poverty.

“It is indefensible that anyone in our society is going without essentials like food, shelter, heating and toiletries. We must ensure compassion and justice underpin the design and delivery of Universal Credit. Low benefit levels, delays in payments and unaffordable debt repayments are combining with the high cost of living to tip people over the brink.

“The Government has rightly said it will end the benefits freeze, but this will not undo the harm already caused to low-income families. Ministers must go further by ending the five-week wait for the first Universal Credit payment and ensure the system of advance payments does not push people into debt from the very start of their claim.”