Fuel deductions and benefit

Please be aware that welfare rights law and guidance change frequently. Older articles may be out of date.

Fuel prices are rising steeply. Rules allowing deductions from benefit for fuel costs have now been amended, with the official intention of providing some protection for claimants, albeit only on a temporary basis. Simon Osborne looks at the change and what the rules allow.

Introduction

Following an unprecedented rise in gas prices, the ‘energy cap’ (ie, average price limit, set by Ofgem) on fuel charges rose by 54 per cent from April. A further increase is expected in October. The adverse impact, especially for those on low incomes, is obvious.

For those on means-tested benefits, a particular consequence could apply to deductions from DWP-administered benefits to meet fuel costs. Where the claimant is in fuel debt (ie, has arrears to the fuel provider including regarding reconnection or disconnection), rules provide for deductions from universal credit (UC) or the DWP-administered legacy benefits (income-related employment and support allowance, income-based jobseeker’s allowance, income support and pension credit).1 This is sometimes referred to as ‘Fuel Direct’. Deductions are for both ongoing (ie, current) costs and the debt. From 26 April, amendments provide that deductions for ongoing fuel costs can only start, or be increased, following an application from the claimant – ie, not from the fuel provider. But providers (as well as claimants) can still make applications regarding deductions for the debt.

What has changed?

The changes to the rules are made by the Social Security Benefits (Claims and Payments) (Modification) Regulations 2022, No.428, which came into force on 26 April. From that date, starting or increasing deductions for ongoing fuel costs requires, in effect, the consent of the claimant. Existing deductions can continue without the need for fresh authorisation. The change is time limited and will cease to have effect on 6 April 2023. Rules about deductions for fuel debt are unchanged. The Explanatory Memorandum to the amending regulations sets out the official policy reasoning:

7.3 As energy prices increase, energy suppliers would have inevitably requested larger ongoing consumption payments directly from benefit awards when the new caps come into effect in April and then October 2022. This would mean DWP channelling potentially significant sums of a benefit award directly to energy suppliers before a claimant is paid themselves. Crucially, in many cases, a claimant’s express consent is not required by the existing regulations.

7.4 Record energy prices are just one of a range of cost-of-living pressures that DWP claimants are facing. Given the increased proportion of income that energy bills are likely to represent in coming months, the Department is not content to continue to prioritise this particular need to the potential detriment of other essential needs – unless this is the express wish of a claimant.

Before the changes were made, a relevant legal challenge was already before the High Court. That is a judicial review, regarding the unamended deductions scheme in legacy benefits. A central part of the challenge is that the DWP did not seek (although not explicitly required) the claimant’s consent in making and continuing deductions for fuel and water from the claimant’s legacy benefit. At time of writing, a hearing of the challenge was expected in July.

The rules

Deductions for fuel costs are part of the so-called ‘deductions scheme’ for deductions from DWP-administered means-tested benefits for payments of essential costs to third parties. Those third parties include, regarding fuel costs, the fuel (or energy) suppliers. There are specific rules regarding fuel deductions.2

When can fuel deductions be made?

Subject to the changes described above, claimants in debt with mains gas or electricity (including with reconnection and disconnection charges) can have their UC or other DWP legacy benefits made subject to deductions for ongoing consumption (except where ongoing payments are made in some other way – eg, a pre-payment meter), and for payment of the debt. For UC, the requirement is simply that the claimant is in debt for any fuel cost, although whether to make deductions is still a discretionary decision – ie, arguably should involve consideration of the claimant’s interests. For legacy benefits, the debt needs to be at least £77 (for 2022/23) and the DWP must believe that deductions are in the claimant’s or her/his family’s interests.

In legacy benefits (but not, at the time of writing, for UC), third-party deductions for debt are temporarily paused where, in England and Wales, the claimant has sought debt advice and comes under the ‘Breathing Space’ debt respite scheme, but deductions for current costs can continue.3

Amounts and limitations

For UC, fuel deductions are at a rate equal to 5 per cent of the claimant’s UC standard allowance (in effect, this is for the debt), plus an estimated amount considered by the DWP to be necessary for meeting ongoing costs of the fuel concerned.4 More than one third-party deduction may be made from UC. Under the rules, there is an overall limit applying to most deductions, of 40 per cent of the claimant’s standard allowance (although that limit excludes ongoing fuel costs). The rules allow the limit to be exceeded regarding deductions for fuel, rent or housing costs, if that is considered in the claimant’s ‘best interests’.5 However, in practice the DWP operates a policy of usually limiting total deductions to a maximum 25 per cent of the claimant’s standard allowance. That policy limit can be exceeded to make deductions for ‘last-resort’ deductions in order to avoid eviction or having utilities cut off – so could include fuel deductions.6

The rules provide some further detail. The claimant must be left with at least one pence of UC payable, and no more than three of certain deductions may be made at any one time. Fuel deductions are one of those in the list (as are deductions for rent arrears, water charges and council tax arrears). Also, the total amount deducted for fuel and water charges combined cannot, without the claimant’s consent, exceed an amount equal to 25 per cent of her/his standard allowance plus any child elements included. If the UC is ‘insufficient’ to meet all the applicable deductions, then a priority order for deductions applies. Fuel deductions are third in that list, behind deductions for housing costs and rent arrears.7

For legacy benefits, deductions for ongoing fuel consumption are estimated to meet necessary costs, and can be adjusted if costs increase or decrease. Deductions for each fuel debt are limited to £3.85 a week, with a maximum of £7.70 (for 2022/23) payable.8

More than one third-party deduction may be made from legacy benefits. The claimant must have at least 10 pence of benefit left.9 Deductions for the total of housing costs, rent arrears, fuel debt, water debt, council tax arrears, court fines and integration loans cannot exceed £11.55 a week (for 2022/23). If the amount of the fuel deductions, or the combined amount of deductions for fuel, rent, water, housing costs arrears and repayment of integration loans is more than 25 per cent of the claimant’s applicable amount (or if on child tax credit, the applicable amount plus the child tax credit and child benefit), the deductions cannot be made without the claimant’s consent. If the claimant’s benefit would not allow all applicable deductions to be made, a priority order applies. Deductions for fuel charges are third in that list, behind deductions for housing costs and rent arrears.10

What now?

Following the amendments, until 6 April 2023 claimant consent must be given for deductions for ongoing fuel costs to start or to be increased.

That is not required for deductions for fuel debt. Specialist debt advice is strongly advisable where such deductions are problematic. The Breathing Space scheme may provide a temporary respite, although, regarding third-party deductions, only in legacy benefit cases in England and Wales at time of writing. More widely, in appropriate cases the DWP could in any case be requested to cease the deductions, even if temporarily, on the grounds of the claimant’s best interests. Refusals to do so are capable of legal challenge in appropriate cases, including by judicial review, in particular where matters are urgent. The outcome of the judicial review in the legacy benefits case mentioned above may throw more light on the prospects of success in such cases.

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