Tax credit debt – The Universal Credit problem nobody is talking about

By Kate Belgrave

For months now, Universal Credit has hardly been out of the headlines. From the cost of calling the helpline to long delays in payments, the rollout of the government's flagship new benefit has been plagued by problems. But one subject that is rarely discussed is the transfer of tax credit debt from HMRC to the Department for Work and Pensions (DWP) when people are moved on to Universal Credit.

A Freedom of Information request revealed that between April 2016 and October 2017, 95,620 Universal Credit claimants had deductions made from their payments due to such debt. The average monthly deduction in October was £50.85 – no small amount for people who are already on such low incomes and who often already have money deducted from their benefits for other debts such as rent arrears, council tax, court fines and more recently, advance Universal Credit loans which they are forced to take out to cover delays in initial payments.

One person who knows all about this is a young Universal Credit claimant who had £33 deducted from her payment for a tax credit debt she thought she had already repaid. Susan (not her real name) is one of the many people caught up in the 2016 Concentrix debacle. Like many affected, she was accused of living with someone she'd never heard of. Her tax credit account was closed. The HMRC insisted she owed several thousand pounds in overpayments, something she fiercely disputed. Figures for the alleged debt changed over several months from £4,000 to about £1,300.

Earlier in 2017, Susan, who has a primary school aged child, says that without warning the DWP started taking about £25 a month from her Universal Credit payments for this 'debt' (other Universal Credit recipients have reported similar unexpected deductions to me).  She says the deductions stopped and started through the year. They stopped again in November – and then suddenly started again in December.

She is now also repaying a Universal Credit advance loan at £67 a month. She took the loan out, in part, to cover the tax credit debt repayments that the DWP suddenly began deducting from her.

With both deductions Susan was down about £100 just before Christmas. She had been expecting the deductions for the loan, she wasn't expecting the £33 for tax credit debt.

The thought of having to call the Universal Credit helpline to ask what had happened was agonising. She (and I) have called Universal Credit, DWP Debt Management and the HMRC many times to try and find out where this tax credit debt came from, how much was owed and how much was likely to leave her Universal Credit account each month.

The bureaucracies that people must use to sort these problems out are hopeless. I know how bad these systems are, because I've made calls about Susan's case (and other people's cases) to the DWP and the HMRC myself. Susan's problems go back more than a year and fall between government departments – which, needless to say, makes finding someone who will take responsibility for them almost impossible.

At the end of October last year, I rang the Universal Credit line to ask about the tax credit debt deductions they had made to her payments. They told me they couldn't help. I had to ring the DWP's debt management department. I did that – and waited on hold for 20 minutes on two occasions before I got through to someone, as detailed here. Talking to that person turned out to be a waste of time, too – the officer said that debt management couldn't answer tax credit debt questions. We had to call the HMRC for answers to those. Susan herself made numerous calls to Universal Credit and debt management, and to the HMRC, to try and pin down the debt and deductions. She even says a Universal Credit officer told her in November that her file had been examined by the DWP because so many phone calls had been made about problems with her account.

Just getting a printout of Susan's tax credit payment and repayment history proved so challenging that in October, we decided to make a subject access request to the HMRC to get the information that way. It hasn't arrived yet – apparently it takes 40 working days.

In November, the HMRC finally sent her a letter which said she was overpaid tax credits when her Universal Credit account was set up (she went months without a first Universal Credit payment). The letter said that she owed money, because her tax credit entitlement had been reduced and briefly overpaid. The letter didn't explain why it had been reduced. Nor did it explain the supposed post-Concentrix debt of thousands. There was nothing in the letter about the random repayment amounts that the DWP deducted from the woman's Universal Credit account for that debt, or why the deductions stop and start without warning.

Like so many people I talk with, Susan does not know how much money she'll receive from one month to the next. Trying to find someone who will help people resolve complex, cross-department benefits problems is soul-destroying. People who receive Universal Credit can't afford financial uncertainty, or the stress that goes with using these systems.

I asked the DWP for a comment about random deductions being made from people's Universal Credit payments due to tax credit debt and whether there were safeguards in place to make sure people were left with enough money to live on.

The department replied:

"Just like the previous system, tax credit overpayments are recovered by regular deductions and people are told about this in advance.

"There are safeguards in place to protect claimants from large deductions being taken at one time and budgeting support is available to help people manage their money."

I dispute that. People tell me that they are not told about deductions. At best, they say an unexpected message suddenly appears in their Universal Credit journal telling them an amount is about to be deducted. That's not telling people about deductions in advance. That's advising them of a fait accompli. People also say that negotiating amounts for deduction with the DWP is very difficult.

Rachel (not her real name) recently worked as a housekeeper in a care home. I spoke with her at an Oldham foodbank at the end of last year about debts and deductions from her Universal Credit payments which were leaving her with nothing to get by.

Regarding tax credit debt deductions, she said:

"I came out of work last year and they told [me]… working tax credits, they've overpaid me by £1,000. They're [the DWP] taking out £50 a month and I can't do nothing. They just took it out," 

Rachel was also paying bedroom tax, was in rent arrears and was paying back a DWP social fund loan via deduction. She'd received a recent summons for non-payment of council tax. She had also been told that she owed about £5,000 for a benefit overpayment from a decade ago.

"There's nothing left after the deductions… I just keep getting passed pillar to post, pillar to post."

I saw Rachel come into the Oldham foodbank again last Friday. Where are the safeguards for people like her?

Kate Belgrave is a freelance journalist. You can follow her on Twitter here.

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