Universal Credit causes debt?

Tory MP blames opposition for scaremongering

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What is Universal Credit?

By Diane Cooke

Universal Credit is a single monthly payment for people in or out of work.

It replaces some of the benefits and tax credits that people claimed prior to its introduction in September, including:

Housing benefit Child Tax Credit Income support Working Tax Credit Income-based Jobseeker’s Allowance Income-related Employment and Support Allowance

It was designed to make claiming benefits simpler.

A single universal credit payment is paid directly into claimants' bank accounts to cover whichever benefits they are eligible for.

Claimants then have to pay costs such as rent out of their universal credit payment (though there is a provision for people who are in rent arrears or have difficulty managing their money to have their rent paid directly to their landlord).

So what's the issue?

The idea of universal credit is that it can be claimed by people whether they are in or out of work.

There's no limit to the number of hours you can work per week if you get universal credit, but your payment reduces gradually as you earn more.

It is designed to mean that no-one faces a situation where they would be better off claiming benefits than working.

Under the old system many faced a "cliff edge", where people on a low income would lose all their benefits at once as soon as they started working more than 16 hours.

In the new system, benefit payments are reduced at a consistent rate as income and earnings increase - for every extra £1 you earn after tax, you will lose 63p in benefits.

However, the system has been severely criticised, with the Labour Party criticising the system as being in "total disarray".

after a government study found that lengthy benefit payment waiting times were causing claimants to run up hundreds of pounds in debt and rent arrears.

Labour joined welfare charities in calling for the planned roll-out of the benefit to be paused in the light of mounting evidence that design and administration problems are causing financial hardship for vulnerable and low-income households.

One in four new universal credit claimants waited more than 42 days for a first payment, while nearly half of families said moving on to the benefit had led them to fall behind with rent for the first time.

In a report, Citizens Advice analysed 50,000 cases where it had helped people with debt over the past year.

It said that 79% of those on - or waiting for - Universal Credit , were at risk of eviction because they'd missed rent or council tax payments, as well as being at risk of having their energy supplies cut off because they'd skipped bills.

Of those on benefits such as Jobseekers Allowance or Housing Benefit, a lower percentage of 69% were struggling to meet payment deadlines.

It added that two in five of those on Universal Credit had no money available to pay creditors, the typical adult had just £3 left a month.

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