Universal Credit Causes Debt, Foodbank Use and Homelessness

Steve McCabe MP (Birmingham Selly Oak), who is a member of the Works and Pensions Select Committee, has criticised Universal Credit as a system which drags claimants into further debt and hardship. 

A Parliamentary Question tabled by the MP revealed that a staggering 60 per cent of all new Universal Credit claimants are unable to survive the five week wait for their first payment and resort to taking out an advance. 


Mr McCabe has also been told, by Birmingham City Council, that figures from the end of July 2019 revealed that 21% of tenancies were on Universal Credit but accounted for 49% of total arrears with the average arrears case over £786, compared to £657 for those not on Universal Credit.  


The Trussell Trust, the UK’s largest network of foodbank providers has today published a report #5WeeksTooLong: Why we need to end the wait for Universal Credit’ which says that in areas where Universal Credit has been rolled out for at least 12 months, Trussell Trust foodbanks have seen a 30% increase in demand. 


The MP discovered that: 


  • The average advance taken out by new claimants is £400. 
  • Over 50 per cent of new claimants need to repay their advance over the maximum time period allowed (12 months). 
  • Over 40 per cent of new claimants require the maximum advance available (£812 if you have children) 


Taking an advance can have a severe financial impact on people who are already struggling with the costs of day to day living. Under the current rules claimants they can end up spending 40% of their monthly allowance on repayments.  


The DWP has acknowledged this criticism by announcing that it will reduce the maximum repayment rate to 30% from October 2019 and extend the recovery period to 16 months from October 2021. Most of those who have looked at the issue regard these alterations as too little, too late. They will only slightly alleviate the financial pressure experienced by an increasing number of claimants. 


Steve McCabe MP said: 


“All the evidence shows that people claiming Universal Credit are pushed into further financial hardship by the claims process itself. They’re being forced to turn to foodbanks for basic necessities as the report from the Trussell Trust so devastatingly sets out. The Government has made a political choice to implement a benefit system which is predisposed to forcing people into debt.  They have created a loans merry go round with debts mounting before the first payment is received. People often find themselves having to borrow from friends or family members or dreaded loan sharks. What is worse is that Universal Credit is increasing the risk of people becoming homeless by pushing them into rent arrears. 


“We cannot accept a benefit system that makes people worse off from the start. We need a fairly major overhaul of Universal Credit but the Government could start to put this right by ending the 5 week wait for Universal Credit. 

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Steve McCabe

Steve McCabe is the Labour MP for Birmingham, Selly Oak, and has been an MP continuously since 1 May 1997.

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