UC and deductions: recent changes

Introduction

A wide variety of deductions may be made from UC. The most commonly encountered are deductions to the DWP to repay advance payments and overpayments, and so-called ‘third-party’ deductions to cover such matters as, among other things, eligible housing costs (ie, service charges), rent arrears, fuel and water.

Deductions are made under a somewhat bewildering array of different rules and policies. Those for recovery of UC overpayments, for example, are provided for in law by regulation 11 of the Social Security (Overpayments and Recovery) Regulations 2013. Those regulations also provide for recovery of advance payments, although are not applied by the DWP in all cases. UC third-party deductions are provided for by Schedule 6 to the Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Claims and Payments) Regulations 2013. The latter also provides some rules about the maximum amount of deductions that take into account yet further provisions regarding deductions for sanctions and fraud. The deductions rules allow certain deductions to be made at particular rates, sometimes expressed as a maximum rate and usually specified as a percentage of the adult personal allowance.

Since 2019 the DWP has been employing a deductions policy (ie, not set out in law) which provides a limit on deductions overall, so that total deductions from UC usually do not exceed a limit. That limit is set at a limit of the applicable UC standard allowance. The limit may be exceeded to ensure payment of a ‘last resort’ deduction which, says the DWP in information to the public, is one which ‘helps to prevent you from being evicted or having your utilities cut off. It is paid directly to the person or organisation you owe money to.’1

Recent developments – an overview

The deductions policy has been amended to provide that total UC deductions do not usually exceed 25 per cent of the claimant’s personal allowance, instead of the previous 30 per cent. However, a recent court challenge, in the specific context of third-party deductions for court fines and financial hardship, has seen an inflexible application of the policy being held to be unlawful. Finally, recent regulations have adjusted rules on certain third-party deductions in legacy benefits, to be adjusted to take account of the introduction of the ‘Breathing Space’ debt relief scheme in England and Wales.

Total deductions – lowered maximum

The March 2021 Budget announced that the lowering of the total deductions maximum from 30 per cent of the personal allowance to 25 per cent, previously scheduled to start in October, was to be brought forward to April 2021. It is understood that this change applies in all cases, including in cases where deductions were being made before April.

The Budget mentioned ‘debt’ deductions, but the 12 April 2021 update of the DWP Benefit Overpayment Recovery Guide confirmed that the maximum also applies to recovery of over-payments, including recovery of overpaid UC.2

Thus, from April, under the deductions policy the previous differential rate of recovery for UC overpayments caused by fraud (ie, at a maximum of 30 per cent of the standard allowance) has been replaced by maximum rates of 25 per cent (fraud and where the claimant has earnings) or 15 per cent (all other cases). The relevant regulations in fact still allow for a maximum 40 per deduction rate in fraud cases.3It remains that the 25 per cent maximum rate is, as a matter of policy, the maximum total rate for all deductions from UC.

Deductions for advance payments

CPAG is still looking for additional claimants who are interested in challenging the rate of recovery of UC advance payments via judicial review. Please get in touch by emailing [email protected] if you know someone who took out an advance at the start of her/his claim and is repaying it at a monthly rate which is higher than 15 per cent of her/his standard allowance (if no earned income) or higher than 25 per cent of her/his standard allowance (if deductions are from earned income).

Deductions for court fines – unlawful inflexibility

The deductions policy or, more accurately, its application in cases where discretion is possible has come under legal scrutiny by the High Court. In R (Blundell and others) v Secretary of State for Work and Pensions [2021] EWHC 608 (Admin) (17 March 2021), the claimants had sought, on grounds of financial hardship, a reduced rate of recovery regarding deductions from their UC for court fines. The Secretary of State refused to do so on grounds that in the cases concerned the total deductions maximum in the deductions policy (ie, at the time, 30 per cent of the UC standard allowance) had not been breached, and that the claimants’ remedy was to apply to the magistrates’ court for a change to the benefit deduction order imposed there.

In the High Court, Mr Justice Kerr held that the Secretary of State’s response was an unlawful fettering of her discretion to make deductions for court fines at a lower rate. The Secretary of State in fact had quite a wide range of statutory discretion to make deductions at lower rates (including at a minimum of 5 per cent of the standard allowance) or higher rates. To insist on the deductions policy as the only trigger for making a deduction at a lower rate was unlawful.

The judge did not hold either that the rules on deductions or the deductions policy were themselves unlawful. It was rather the way that the policy as applied had fettered the discretion that should have been exercised in the cases concerned. Indeed, DWP information says that in other cases where the rules allow discretion in the amount deducted, the deduction could be reduced if the claimant is ‘struggling’ to repay her/his debt. The information to the public says:4, updated 12 April 2021, available at gov.uk

‘If you’re struggling, you can ask for a financial hardship decision to reduce the amount of benefit debt you pay. You may be considered for this if you have money taken from your universal credit for:

• benefit debt;
• budgeting loan and crisis loan repayment;
• advances;
• rent arrears (if they’re taken at a rate greater than 10% of the standard allowance).’

Subsequent to the decision in Blundell, the DWP is operating a policy of making deductions for court fines in UC at the statutory minimum – ie, at 5 per cent of the UC standard allowance.5

Breathing Space and deductions

In England and Wales, the ‘Breathing Space’ debt relief scheme allows a temporary, time-limited suspension (or moratorium) of recovery authorised by the Financial Conduct Authority (FCA) to offer debt counselling, or a local authority (LA), where it provides debt advice to residents.6Debt deductions from benefit may be included, including deductions to recover overpayments. At time of writing, the scheme did not include reference to UC advances or UC third-party deductions. This may change.

According to the Explanatory Memorandum on the rules for the schemes:

‘Universal credit advances and universal credit third-party deductions are currently excluded, but will be included in the protections on a phased basis as early as possible following the start of the policy in early 2021, to ensure that IT changes required align with other requirements of the wider universal credit programme.’7

Recent (April 2021) guidance to local authorities clarifies this position, with regard to third-party deductions (TPDs) from UC for rent and council tax arrears:8

‘To clarify, where deductions are being taken from the claimant’s UC, the LA should not take any action to stop the deductions as UC TPDs are not currently included in the protections of Breathing Space. The debt advisor should not notify the LA in these circumstances.’

The introduction of the scheme has prompted adjustment to some of the rules on deductions regarding third-party deductions in DWP-administered legacy benefits (but not yet in UC, for the reasons noted above). These are where the rules otherwise would require third-party deductions for debt to be being made in order for deductions for current costs also to be made. Amendment regulations therefore provide that third-party deductions for current costs regarding housing costs, fuel and water in legacy benefits can continue to be made from DWP legacy benefits where deductions from those benefits for arrears of such costs are subject to a moratorium under the Breathing Space debt relief scheme.9