Caught between a rock and a hard place: why advance payments are not the solution to the five week wait

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A blog post by
Abby Jitendra
Policy & Research Manager


Unaffordable DWP loans are not the answer to the five week wait

Would you be able to go five weeks without any money?

When you apply for Universal Credit, that’s the minimum amount of time you have to wait for your first payment.

We put out our year-end food bank figures last week showing that a record 1.6 million food parcels had been given out by our network last year, a 19% increase on the year before. Universal Credit now accounts for half of all referrals to food banks due to benefits delays, and waiting for Universal Credit is a growing trigger forcing people to food banks.

While you wait, you can apply for an ‘advance payment’ – that’s a loan from the Government to see you through that five week period. Once your Universal Credit payments start, you pay that loan back automatically through deductions from your monthly payments.

The Department for Work and Pensions (DWP) tell us that these repayments are affordable, but we know that’s not true – food banks and the people they support tell us they can leave people stuck between a rock and a hard place. Here’s why:


  1. Repayments don’t take into account people’s ability to afford them

It seems like common sense to assess whether you have enough coming in to pay your loan back. In the private sector, it’s best practice for debt collectors to do an income assessment of the person and then set repayments at a level that won’t push people into hardship.

But that’s not how advance payments work – deduction levels are set by the DWP and don’t take into account your ability to pay them, or whether you’ll fall into financial hardship while doing so. In some cases, you can have your repayment levels renegotiated, but this is rare – and by that point, you’re likely already in arrears.

The Government prevents the lending industry pushing people into financial hardship when repaying debts – so why is it allowed to get away with it?


  1. Even small deductions can have a big impact on people living on a financial knife-edge

Deductions are capped at 40% of your Universal Credit standard amount, and the DWP says most people don’t pay this much.

But even relatively small deductions to people’s living costs can lock people into poverty. We know people on Universal Credit might not have enough to cover even basic essentials like food, because of cuts to the system and the freeze on working-age benefits.

The debt advice and management charity StepChange found that 71% of the people they support have experienced hardship because of deductions, and a quarter of those with deductions had to spend less on food to get by. They found that even a deduction of just 5% can push people deeper into financial hardship.


  1. You could be hit by multiple repayments, including ones you didn’t know you had

It’s hard to budget for paying back arrears – particularly if, like many people in financial hardship, you have multiple debts you need to repay.

An advance isn’t necessarily the only thing you’d be repaying through an automatic deduction – you could be paying back a third party debt for energy bills or council tax. Depending on the level of your debts, these additional repayments could tip you above the 40% cap set by the DWP.

The Government is also using the move to Universal Credit to recover historic debts, so people are finding themselves hit by surprise repayments for debts they didn’t know they had.


  1. It’s not just claimants themselves who feel the effects of advance payment repayments

When people can’t pay their rent because their repayments don’t leave them enough to cover it, they fall into rent arrears which affect housing associations and private landlords. Local Authorities, like Southwark Council and Newcastle Council have said that the five week wait for the first Universal Credit payment is a strain on their finances as their crisis funds are running out.

And we know food banks have seen higher increases in demand in areas where Universal Credit has rolled out.


So what’s the solution?

In the short term, the DWP should make advance payments into grants. At the very least, this could be targeted at people who need it most – those with inescapable higher living costs such as disabled people or people who might struggle to access support.

This would help prevent some of the millions of people who will be moving onto Universal Credit from facing debt, deductions, and hardship down the line. But it won’t solve the root problem. Universal Credit should be protecting people from poverty, not pushing them into it – that’s why we need a longer term solution, one that deals with the fact that most people can’t last five weeks without money coming in.

A true solution would be to make the wait for a first payment shorter so people don’t have a significant gap between applying for Universal Credit and being paid.

The Government needs to end the five week wait now.

Join the #5WeeksTooLong campaign and help make that happen or find out more on our website.

The figures in the video are based on estimates of the kinds of deductions we know people in arrears on Universal Credit might face. Single adults over 25 on Universal Credit receive a standard allowance of £317.82 from which deductions are taken, and many people face multiple deductions reducing the amount of money they have coming in. Deductions are capped at 40% of this allowance but this can be breached if the Department or creditors deem certain arrears are urgent to collect.