SCOTTISH charities have urged the Department for Work and Pensions (DWP) to rethink a push to claw back £2.4 billion from tax credit claimants – and write-off the debts instead.
Around 285,400 people receive the benefits, which are part of the Universal Credit system and used to top-up the income of struggling households. The payments are aimed at incentivising paid employment and most of those who get them are in work.
There’s been a spike in the number of people claiming Universal Credit as the pandemic pushed more households into cash struggles.
So far in the 2021-22 financial year, more than £364 million has been distributed in overpayments, according to data provided through the House of Lords. These can be made when claimants have a change in circumstances – even if this is reported on time – or if paperwork is late or an error is made in the accounts.
Regardless of the reason for the overpayments, recipients can be required to hand that sum back and the Government has recovered £61.8m over this period. The DWP is now set to go after as much as £2.4bn said to have been laid out in overpayments, according to HMRC estimates.
But three Scottish charities have told the Sunday National that could push people below the breadline. And they say the UK Government should consider writing off those overpayments.
Members of the public can challenge an attempt to recoup overpayments, which are sometimes sought in error. According to Citizens Advice, this can happen if HMRC has “got some information wrong”, such as wrongly believing a person lives with a partner, is not self-employed when they are, or are on higher wages than they really earn.
The Poverty Alliance said: “Many people living on low incomes across Scotland are struggling with the constant pressure of carrying debt, accrued both before and during the Covid-19 pandemic. For many, this debt is acting as a weight pulling them deeper into financial insecurity and hardship.
“The recovery of this debt, for many, will lock them even tighter into poverty. Writing off unsustainable debt is one action that could help reduce the pressure, and loosen the grip of poverty on people’s lives.”
And John Dickie, director of the Child Poverty Action Group in Scotland, said: “Overpayments of tax credits can saddle claimants for years with debt that they didn’t know about and hadn’t budgeted for. Having to repay this debt reduces already meagre benefits, making it very difficult for those on the lowest incomes to meet basic living costs.
“The recovery process itself raises many concerns, including tax credit overpayments being recovered from Universal Credit when there is an ongoing dispute or appeal with HMRC, or when claimants have no knowledge of how the overpayment arose and HMRC is unable to provide an explanation. Deductions are often imposed at maximum recovery rates with little consideration of affordability, causing further hardship.
“Instead of chasing the poorest families for money they don’t have – and setting them up to fail – the Government should write off historic tax credit debts of more than two years.”
Labour peer Baroness Lister questioned the UK Government about the issue, asking “how much it would cost to write-off overpayment tax credit debt accrued by Universal Credit claimants” and how many people this would affect.
Conservative peer Baroness Stedman-Scott said around £3bn in tax credit debt associated with 2.4m Universal Credit claimants has been transferred to the DWP. As much as £634m has been recovered since the 2016-17 financial year, with £9.4m also written off for 5700 people over this period.
Stedman-Scott said: “The latest HMRC forecasts suggest that a further £2.4 bn is due to migrate to DWP Debt Management for future recovery.
“Therefore, based on the value of debt transferred to date and the forecast of further debt that will transfer, if all Tax Credits debt associated to UC [Universal Credit] claimants was written off it would cost in the region of £5.4bn associated to approximately 4m customers.
“The department has a duty to protect public funds and an obligation to ensure that overpaid benefit payments are recovered in accordance with the appropriate social security legislation. The department seeks to recover benefit overpayments as quickly as possible without creating any undue financial hardship to the claimant. The rate of deduction is determined by legislation and can only be calculated once other higher priority deductions have been taken into account. The maximum deduction that can be taken from someone’s UC Standard Allowance was reduced to 25% in April 2021.
“We want to ensure that repayment of all debt owed to the department is sustainable and takes into account the customer’s ability to pay. Claimants are encouraged to contact DWP if they are unable to afford the rate of recovery.”
Marion Davis, head of policy at One Parent Families Scotland, said: “The news that approximately £3bn tax credit debt, involving 2.4m Universal Credit claimants, has been transferred to DWP is extremely worrying. Some of these will be single parents, many of whom have lost out transferring to Universal Credit. They trusted HMRC to correctly calculate their entitlement and spent their money in good faith providing for their children.
“Tax credit overpayments are very common – many are built into the design of the system. In our experience, many people struggle to understand the award notices and often such debts would be recovered gradually from ongoing payments and may have gone unnoticed. We believe the DWP should write off all non-fraudulent tax credit overpayments. This will save innocent families from the distress and hardship caused by system-created errors, and will save the millions of pounds currently being wasted on forcing families who spent their awards in good faith to somehow find money they do not have.”