Universal Credit. Advances Policy Overview. Kevin Jackson Caxton House, London 31 st October Department for Work and Pensions

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1 Universal Credit Advances Policy Overview Kevin Jackson Caxton House, London 31 st October Department for Work and Pensions

2 RESTRICTED - POLICY Advances Within Universal Credit there will be 3 different types of advances available: Universal Credit Advances UC (New Claimant) Advances Budgeting Advances These will be payments on account, advance payments of Universal Credit which are recoverable from subsequent payments of Universal Credit. 2 Department for Work and Pensions

3 RESTRICTED - POLICY Universal Credit Advances Policy Summary Existing benefits are paid either weekly, fortnightly or 4 weekly in arrears. When a claimant is migrated from their exiting benefits to Universal Credit the first Universal Credit payment will be paid in arrears one month and seven days from the date of claim. Therefore when a claimant migrates to Universal Credit there is likely to be a gap in provision between a claimant receiving their final payment of an existing benefit and receiving their first Universal Credit payment. To cover this transition a Universal Credit Advance will be available to migrating claimants to cover the initial shortfall in income and to prevent hardship. The Universal Credit Advance will be recovered in equal instalments over 12 months from deductions in the claimant s monthly award or faster if the claimant wishes. 3 Department for Work and Pensions

4 RESTRICTED - POLICY UC (New Claimant) Advances and Budgeting Advances Background The Welfare Reform Act 2012 abolishes the discretionary Social Fund. In order to retain the protections currently available to benefit claimants via the Social Fund, a system of payments on account of benefit is being introduced to replace Budgeting Loans, Crisis Loan alignment and Interim payments. UC (New Claimant) Advances will replace Interim Payments and Social Fund Crisis Loan alignment payments from April 2013 for new claimants to Universal credit. Universal Credit Advances will be available to existing benefit claimants who move across to Universal Credit. Budgeting Advances will replace Social Fund Budgeting Loans for eligible Universal Credit claimants from April Department for Work and Pensions

5 UC (New Claimant) Advances and Budgeting Advances RESTRICTED - POLICY Background - Continued Funding for a new service, following the abolition of Crisis Loans for living expenses and Community Care Grants, is transferring to Local Authorities in England and the Devolved Administrations in Wales and Scotland as part of the Local Welfare Provision. The new provisions will effectively ensure continuity of the services which would otherwise have been available from the discretionary Social Fund, but in a way that is simpler and more cost effective to administer and which also removes the need for a separate, ring-fenced budget. 5 Department for Work and Pensions

6 UC (New Claimant) Advances and Budgeting Advances RESTRICTED - POLICY Policy Aims Those provisions are designed to strike a fresh balance between providing support to those who most need it and discouraging dependency on the benefit system and long-term repayment of loans, enabling claimants to take more personal financial responsibility. UC (New Claimant) Advances will ensure that those facing immediate financial need when making a new claim to Universal Credit or following a change of circumstances (which results in a significant increase in the amount of benefit award) have access to some funds. Budgeting Advances will ensure that those with the lowest incomes and claiming Universal Credit will continue to have access to an alternative to high-cost lending for emergency and unforeseen expenses. 6 Department for Work and Pensions

7 RESTRICTED - POLICY UC (New Claimant) Advances Policy Summary UC (New Claimant) Advances will continue to be available in broadly the same circumstances as Crisis Loans for alignment and Interim payments are now. This means replacing Social Fund alignment loans, designed to provide emergency funds where a claimant doesn t have enough money to last until their first UC payment due date. These Advances will replace Interim payments, designed to pay a claimant s full award where their payment due date has been reached but their benefit cannot be paid for some reason even though they are in financial need. UC (New Claimant) Advances will also be available to existing claimants who have a change of circumstances which results in a significant increase in benefit entitlement where the claimant cannot wait for the increase. The most likely scenario for this is where the claimant has an addition to their household. 7 Department for Work and Pensions

8 RESTRICTED - POLICY UC (New Claimant) Advances Policy Summary In order to be eligible for an UC (New Claimant) Advance, the claimant must first have entitlement to Universal Credit. UC (New Claimant) Advances will only be paid in cases of genuine financial need without access to other funds or means of support. To be eligible, the claimant must be able to demonstrate that they are in financial need. The other key criterion is affordability to repay the Advance, which is recoverable over a maximum period of 6 months. The intention is that UC (New Claimant) Advances will only be paid to those who really need them and who can afford them, with the amount of advance being kept as low as possible, so that the subsequent repayments from their UC award are kept as low as possible. 8 Department for Work and Pensions

9 RESTRICTED - POLICY Budgeting Advances Policy Summary Budgeting Advances are intended to help claimants defray intermittent expenses such as needing to buy essential items like furniture or household equipment, or expenses related to, for example, maternity or starting work. Claimants will be required to pay Budgeting Advance back over 12 months. Claimants will have had to have claimed Universal Credit for at least 6 months to qualify (including time spent on legacy benefits if this is continuous). Any other deductions from Universal Credit that are already in place will be taken into account when deciding whether to award a budgeting advance. Claimants can only have one Budgeting Advance at a time. 9 Department for Work and Pensions

10 RESTRICTED - POLICY Budgeting Advances It has been agreed that for consistency with Budgeting Loans: the minimum amount for a Budgeting Advance should be 100 the maximum amounts will be : 348 for a single person 464 for a couple 812 for households with any dependent children Any capital the claimant has over 1,000 will reduce the maximum amounts proportionately. Only one Budgeting Advance at a time and subject to maximum amounts. 10 Department for Work and Pensions

11 RESTRICTED - POLICY Income thresholds for Budgeting Advances The income thresholds to qualify for a Budgeting Advance will be: No more than 2,500 earnings in the last six months for a couple household (with or without children). No more than 1,500 earnings in the last six months for a single person household (with or without children). 11 Department for Work and Pensions

12 RESTRICTED - POLICY Any Questions? 12 Department for Work and Pensions

13 Deductions in Universal Credit Jane Autherson 31 st October Department for Work and Pensions

14 Deductions in Universal Credit The three main aims of deductions in UC are: to safeguard vulnerable claimants, by offering a last resort repayment method for essential services, when claimants are at risk of homelessness or disconnection of fuel to enforce social obligations, when other repayment methods have failed or are not cost effective, such as the collection of Fines and Child Maintenance to ensure government debt is recovered in a cost effective manner, such as Social Fund loans and benefit/tax credit overpayments 14 Department for Work and Pensions

15 Principles of deductions policy When there is only one deduction required: the item s maximum deduction rate will be taken (or as much as is available) When there is more than one deduction required: 1. Provided there is sufficient UC in payment, deductions will be taken for all items 2. We will never deduct an amount more than the equivalent of 40% of the UC Standard Allowance that is being applied to that benefit unit (however see bullet points below) this applies whether or not the full UC Standard Allowance is in payment if there are deductions for arrears of utilities/water, we will also deduct for ongoing consumption, but it won t count towards the 40% maximum if a Sanction or Penalty is being applied or an Advance is being recovered, last resort deductions will continue, even if it means more than 40% of the UC Standard Allowance is being deducted 3. If the claimant is receiving insufficient UC to meet all deductions, the Priority Order will be applied and as many deductions as possible will be taken alternative arrangements will have to be made to recover debts that can t be deducted 4. No more than three Third Party Deductions will be taken at any one time 5. Benefit debt will be deducted one at a time, except when there are debts from different government organisations if a claimant has outstanding overpayments of benefit debt from more than one government organisation, an equal proportion of the maximum deduction rate will be deducted for each debt 15 Department for Work and Pensions

16 Priority Order Deductions taken before the Priority Order is applied 1. Fraud penalties 2. Conditionality sanctions 3. Payments on account (Universal Credit, Short-term and Budgeting Advances) Deductions Priority Order Last resort deductions 4. Mortgage interest arrears and owner occupier service charges (where the lender is not part of MID scheme) 5. Rent and service charges arrears 6. Gas and Electricity arrears 7. Water arrears Enforcing social obligation deductions 8. Council Tax and Community Charge arrears 9. Fines (minimum deduction rate) 10. Old Scheme Child Maintenance 11. Flat Rate Maintenance Ensuring recovery of benefit debt deductions 12. Social Fund loans 13. Recoverable hardship payments 14. HB and DWP Administrative Penalties 15. HB, tax credit and DWP Fraud overpayments 16. HB and DWP Civil Penalties 17. HB, tax credit and DWP normal overpayments Enforcing social obligation deductions 18. Integration loan arrears 19. Eligible loan arrears 20. Fines (maximum deduction rate) 16 Department for Work and Pensions

17 Maximum deduction rates Overall Maximum deduction rate There will be an overall maximum amount that can be deducted from someone s UC, which will be an amount equivalent to 40% of the UC Standard Allowance that is being applied to their benefit unit. There will be two exceptions to the 40% maximum rule, which will be: Deductions for normal consumption of utilities/water will not count towards the 40% maximum If a Sanction or Penalty is being applied, or an Advance is being recovered, last resort deductions will still be taken, even if the total amount of deductions is higher than the 40% maximum 17 Department for Work and Pensions

18 Maximum deduction rates Third Party Deductions Third Party Deductions (TPDs) will be deducted at an amount equivalent to 5% of the UC Standard Allowance that is being applied to their benefit unit. A deduction will also be taken for ongoing consumption of gas, electricity and water, which will be at a variable rate. Fines Fines will have a maximum deduction rate of a month, and a minimum deduction rate which will be the same as the other TPDs (an amount equivalent to 5% of the UC Standard Allowance). Any other deductions being taken, will reduce the maximum deduction rate pound for pound, down to the minimum deduction rate. Flat Rate Maintenance Flat Rate Maintenance will continue to be deducted at set rates. Currently the set rate is 5 a week, but a claimant can have a percentage of the set rate deducted if they have joint responsibility for a child. 18 Department for Work and Pensions

19 Maximum deduction rates Benefit Debt Social Fund loans will continue to be recovered at the rate that was last agreed with the claimant (when they were receiving the legacy benefit). The maximum deduction rate for Recoverable Hardship Payments, Administrative Penalties and Fraud Overpayments will be an amount equivalent to 40% of the UC Standard Allowance that is being applied to their benefit unit. The maximum deduction rate for Civil Penalties and Normal Overpayments will be an amount equivalent to 15% of the UC Standard Allowance that is being applied to their benefit unit. This can be increased by a further 10%, if the household earnings are above the applicable earnings disregard. Any of the above rates can be reduced if the household is facing financial hardship. The decision to reduce the recovery rate is based on the household income and expenditure. 19 Department for Work and Pensions

20 Criteria and triggers There will be a set of criteria for each deduction type, which must be satisfied for the deduction to be taken. For example, for last resort deductions the household earnings must be below their earnings disregard in the month preceding the request for the deduction; whereas the only criteria for the recovery of benefit debt is that the claimant is in receipt of UC. There will be a set of criteria for each deduction type, which when satisfied, will mean a deduction will cease. For example, for last resort deductions, if the household earnings are above the applicable earnings disregard continuously for 3 months, the deduction will stop. There will be triggers for when a deduction will be considered, such as a certain amount of arrears have accrued or the Council have obtained a liability order for the recovery of Council Tax arrears. 20 Department for Work and Pensions

21 Further details UC Standard Allowance is the core cash component of a UC award and is intended to help with ordinary living expenses. There will be four rates: Single rate (under 25) Single rate (25 or over) Couple rate (both under 25) Couple rate (one/both 25 or over) This will mean in most cases couples will repay more towards their debts, because they will have a higher rate of income. If we decide to make a deduction for arrears of gas, electricity or water, we will also make a deduction for ongoing consumption. Once arrears of gas, electricity or water are fully repaid, both the deduction for arrears and normal consumption will cease. If the amount requested to be deducted for gas, electricity and water (both for arrears and normal consumption), exceeds an amount equivalent to 25% of the UC Standard Allowance and any child elements, the claimant s consent is required before the deductions can be input. 21 Department for Work and Pensions

22 Any questions? Jane Autherson 22 Department for Work and Pensions