People can have money deducted from their benefits for various reasons. These include to pay off fuel arrears, to meet a continuing essential bill such as housing costs or to repay a benefit advance or loan.
A survey regarding deductions by debt advice charity Step Change in 2017 found that deductions caused hardship to 71% of respondents and their families. However, they may still be made even if a claimant is already struggling to maintain basic living standards on a limited income. There are limits to the number of deductions that can be taken, as well as caps on the amounts and the proportion of benefit that clients must pay. However, if a client is liable for a debt, they have limited control over how much of their income is taken or for what purpose it is being taken.
A “third-party deduction” is a common type of deduction that may be made from certain benefits. It can be made for the following:
● Rent and service charge arrears
● Council tax arrears
● Gas and electricity arrears
● Water and sewerage payments and arrears
● Court fines and compensation payments.
The Department of Work and Pensions (DWP) may also seek to take money from benefits in addition to any third-party deductions. These could be to repay a benefit advance or a budgeting loan, pay a benefit sanction or return an overpayment of benefit.
Which benefits are affected?
Deductions can be made from some of the older means-tested “legacy” benefits that are being replaced by universal credit, including income-related employment and support allowance (ESA), income support and income-based jobseeker’s allowance (JSA). Universal credit and pension credit can also be subject to deductions.
Where a claimant is not getting one of the above benefits but is receiving contributory ESA or contribution-based JSA, payments may be taken from these, but only for certain things, specifically council tax arrears, fines and child support maintenance arrears. For benefits other than universal credit, the amount that can be deducted for arrears, such as for rent or fuel, is £3.75 per week. The amount that can be deducted for continuing costs varies depending on the item involved.
The rules about universal credit deductions are different – most importantly, higher amounts can be taken from them than from legacy benefits. Deductions can be made for three third-party deductions at any one time and money can also be taken at the same time for child support payments or Department for Work and Pensions debts, including benefit overpayments, hardship payments and advance payments.
A lot of universal credit claimants have had a deduction made to their award from the first payment. That is because many must apply for an advance payment as, after making a claim, they have to wait five weeks before they can get their first regular monthly payment.
In universal credit, an overall maximum of 30% of the standard allowance can be deducted. An exception when the overall maximum may be higher is where the claimant has to pay a “last resort deduction”. This is a deduction paid directly to a landlord or utilities provider to help prevent the claimant from being evicted or having their utilities cut off.
evicted or having their utilities cut off. Note there is some good news as, from October this year, the normal overall maximum that can be deducted from a claimant’s universal credit will be reduced from 30% to 25% of their standard allowance. A third-party deduction in universal credit is usually made at a fixed rate of 5% of the claimant’s standard allowance (the basic allowance before elements such as the work capability amount and housing costs are added). That is worth over £17 per month for a single person and about £20.50 for joint claimants.
However, rent arrears can be recovered at a higher rate of 10%-20% of the standard allowance. There are separate rules and rates for the repayment of DWP debts. For example, the repayment of a universal credit budgeting advance must usually be made over 12 months, while budgeting loans, available in legacy benefits, can be repaid within 104 weeks.
If a client is having difficulty with repaying a DWP debt or in paying it off within the expected timescale, they should contact DWP Debt Management to ask for the repayment schedule to be revised. While people are unlikely to welcome deductions being made from benefits, for many it might be the best option to pay off debts and keep landlords or creditors happy.
There is some protection for clients in the limits placed on the proportion of their benefit that can be taken. If your client is facing hardship due to deductions, it is worth asking a welfare benefits adviser to check whether there is scope to negotiate for lower amounts to be taken.