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Universal credit penalties 'will increase debt'

Penalties for benefit recipients who run up debts - including rent arrears - are too high and will lead to hardship and a cycle of debt, a homelessness group has warned.

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Homeless Link, which represents homelessness charities, raised its concerns in response to a consultation on draft regulations for universal credit.

This will combine a range of existing benefits into one payment from October 2013. Payments will be reduced by up to 40 per cent for recipients who run up rent arrears or other debts such as through heating bills.

Homeless Link says the deductions could be particularly severe because universal credit will also remove the option for some benefits to be paid directly to the landlord or service provider.

‘Debt is likely to increase for many people as a result of the loss of the option to choose direct payment from their benefit of costs such as personal service charges in supported accommodation, and the recovery of this debt, and potentially other debts such as social fund repayments or other liabilities, is unlikely to support developing better skills in budgeting,’ it states.

‘The setting of the maximum level of deductions in respect of liabilities at 40 per cent is too high and will potentially result in a vicious circle of hardship payments and debt. Homeless Link asks that the maximum level of deductions be revised downward and that options not to accrue debt in the first place, such as direct payment to third parties, are not closed.’

The organisation is also calling for the regulations to be clearer in areas including how the housing costs of supported accommodation will be managed under universal credit.

‘In particular the reviews of the exempt accommodation rule and service charges have not been finalised. Whilst this may be in process it does not allay fears for providers of services for homeless and vulnerable people,’ the consultation response says.

The consultation on the draft regulations for universal credit closed last month.

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