Universal Credit and Third Party Deductions
Posted by natalie_pearson November 28, 2019
Third party deductions are by no means a new concept to our benefits system. They have been around since the 1970s. they were originally introduced to reduce the risk of fuel supply disconnections.
Schedule 9 to the Social Security (Claims and Payments) Regulations 1987 SI No 1968 introduced that the amount deducted from income support for rent arrears was restricted to five per cent of the ‘standard applicable amount’ for a person aged 25 or over.
This figure has remained at five percent until the present day. Even as other benefits were introduced to the welfare state, such as Job Seekers Allowance and Employment and Support allowance the figure stayed put.
For most of us who advise and deal with rent arrears possession cases, the 5% deduction is where we get our ‘usual amount’ of £3.65 per week towards rent arrears for benefit claimants, and those on a low income where it is affordable and reasonable to make such an offer.
Skip forward to the 1990s and 2000s during these decades we saw deductions for housing costs and rent arrears introduced into the system.
Enter Universal Credit.
When Universal Credit was first introduced, Regulation 2013 SI No 380 Sch 6 para 7(5) continued to restrict deductions for housing costs and arrears to five per cent of the ‘standard allowance’ element of Universal Credit for a person aged 25 or over (currently £317.82 per month)
However, Regulation 6(2)(c) of the Universal Credit and Miscellaneous Amendments (No 2) Regulations 2014 SI No 2888. changed the figure to ‘no less than 10% and no more than 20%’.
What we are left with are direct deductions from Universal Credit that cannot be less than 10 per cent of the standard allowance (for over 25s at £317.92 per month) or more than 20 per cent. In practical terms this mean no less than £31.78, and no more than £63.56 per month. The default position by most landlords has been to apply for the higher rate of 20%, and for the DWP to grant that application.
A landlord can request a deduction for rent arrears from Universal Credit, and the decision is not appealable (although a complaint can be raised if the DWP do not use their discretion, and hardship will be suffered by the claimant).
Three non-Department of work and Pension (DWP) deductions can be taken at the maximum rate of up to 30% (down from 40%, although the regulations still allow for this where the DWP feel it is necessary) from the standard allowance of Universal Credit.
This 30% does not include deductions such as advance payments, DWP overpayments or repayments of loans, sanctions, etc. This doesn’t take into account any Local Housing Allowance rates, ‘Bedroom Tax’ or benefit cap restrictions either.
Social landlord tenants
This deduction can cause issues with social landlord tenants with rent arrears, particularly where there is a Suspended Possession Order in place, or possession proceedings about to be taken.
We know that the County Court can order a minimum of £3.65 per week is to be paid towards any arrears. This order however does not prevent a landlord requesting a third-party deduction between 10 – 20% of the standard allowance.
Any third-party deduction would cover the minimum payment, and then some. Potentially leaving some claimants with little benefit.
Tackling the problem of third-party deductions for rent arrears
Mary-Rachel McCabe and Simon Mullings assisted their client, who was facing an eviction warrant for rent arrears possession, by agreeing with the local authority landlord to a consent order, and by suspending the eviction warrant on terms.
Their client was being left with £49.23 of their standard allowance to live on, after heavy third-party deductions were being taken.
They negotiated terms with the authority that £3.65 per week would be paid towards the rent arrears. More importantly they also secured the authority’s agreement not to seek a third-party deduction. They drew up a consent order suspending the upcoming warrant, with the following two recitals:
- AND UPON the claimant agreeing not to ask the Department for Work and Pensions to make direct payments from the defendant’s universal credit towards the arrears because the minimum that could be paid that way is £7.30 per week (10% of the standard weekly allowance), leaving him at risk of destitution.
- AND UPON the parties agreeing that it would be more appropriate for the court to order that the defendant pay towards the arrears 5% of the standard allowance, currently £3.65.
The court agreed to this, so the tenant can remain in the home and budget their arrears/finances more easily.
They have insisted on not having the process called a McCabe/Mullings order. I’m sure they want it really, who wouldn’t?
What to do if you get a similar case
The following practical steps can then be taken in such cases:
- arrange to set up a direct debit / standing order from their bank account to meet the terms of the order or in the alternative,
- Send a copy of the court order to the DWP asking them to set up an Alternative Payment Arrangement (APA) Managed Payment to Landlord (MPTL) to cover the full rent + £15.82 per month towards the arrears. You could do this either via the journal as an uploaded file with an entry asking for the APA to be set up in accordance with the court order, or by post with covering letter if no journal is being used. Its recommended to follow this up with a phone call requesting the same: For those on UC with a journal: 0800 328 5644 / For those without a UC journal: 0800 328 9344.
How does this really affect people?
The government has produced some statistics which show that 57% of claimants do not receive their full amount of Universal Credit because of deductions.
They state that ‘Deductions include advance repayments and all other deductions but exclude sanctions and fraud penalties which are reductions of benefit rather than deductions.’
Adding the reductions on top of those deductions means that more claimants will not be receiving the full amount of Universal Credit and will be likely to struggle with their living costs.
Of all eligible claims to Universal Credit Full Service due a payment in Feb 2019, 57% 840,000 claims had a deduction. Of these 840,000 claims with a deduction:
- 50% (420,000 claims) had deductions up to 20% of the Standard Allowance (29% of all eligible claims)
- 20% (170,000 claims) had deductions between 21% and 30% of the Standard Allowance (12% of all eligible claims)
- 28% (238,000 claims) had deductions between 31% and 40% of their Standard Allowance (16% of all eligible claims)
- 1% (13,000 claims) had deductions above 40% of their Standard Allowance (1% of all eligible claims)
Will this change at all?
Universal Credit already has procedures and regulations in place to protect claimants from excessive deductions. The maximum rate of deductions cannot normally exceed 30 per cent of the Universal Credit standard allowance.
However, last resort deductions can be applied to protect vulnerable claimants from eviction and/or having their fuel supply (gas/electricity) cut off, by providing a last resort repayment method for arrears of these essential services. In these circumstances, when it is considered to be in the best interests of the claimant and their family, deductions may be taken above the 30 per cent limit.
Although deductions are to be taken ‘up to’ a certain %, the DWP usually automatically set the rate at the highest possible % for that rate when applied for. Deductions are also being taken for overpayments many years after the original overpayment has passed, and in some cases where the file cannot be found to prove the overpayment itself.
By Gerard Hunter, NHAS Consultancy Line Adviser
Here on the NHAS consultancy line we can discuss any issues of payments and deductions in relation to Universal Credit, Alternative Payment Arrangements and Third-Party Deductions, the Housing Costs Element and Housing Benefit. Please contact the NHAS consultancy line 0300 330 0517 or via webchat on the NHAS website to discuss any cases you would like to discuss. Please note the NHAS consultancy line is a 2nd tier advice line for professionals only.