Universal Credit will create ‘coronavirus debt crisis’

The Salvation Army is calling on the Government to immediately replace Universal Credit advance payment loans with grants. The loans are offered to people who need to bridge the gap while they wait for their first payment. The introduction of grants would avoid plunging thousands of people who have lost their livelihoods due to the coronavirus crisis into debt.

Currently, people who apply to receive Universal Credit have to wait five weeks for a first payment, and the only alternative is to take out an advance payment loan.  For many, this loan is almost impossible to pay back as Universal Credit only covers their basic living costs. Even before the pandemic, The Salvation Army noticed an increase in people using our food banks to feed their family so they could pay back Universal Credit accrued debt1.  Unless immediate changes are made to move advance payments to a grant system, thousands could face the choice between buying food and repaying their UC bridging loan.

70,000 people have applied for advance payment loans in the last fortnight2 and the debt spiral is a particular risk for people suffering mental ill health who struggle to access Universal Credit even when the system is not under high demand.  Last week overall, there were nearly half a million new Universal Credit claimants2 and that number is expected to rise significantly in the coming months.

Rebecca Keating, The Salvation Army’s Director of Employment Plus, said: ‘The Universal Credit loan system could cause a coronavirus debt crisis. Thousands of people who never thought they would have to rely on state support are now making a Universal Credit claim. Many of these will be forced to take out the bridging loan which will just move their money problems five weeks down the line. We are particularly concerned by those working on zero hour contracts that don’t have the same legal rights of other employees. Many will not have a financial safety net to help avoid getting into debt straight away.

“The Government has made some helpful changes to help people access benefits such as removing the requirement for people to attend job centres appointments for the next three months, but requiring a loan to cover a five week wait for financial support is the point of critical failure that the Government must address. Not only will this add stress for people already struggling with the fall-out from the pandemic, but also leave a lasting legacy if too many people are shouldering too much avoidable debt.”

The Salvation Army has previously called for an end to the 5-week wait for first payments of Universal Credit in oral evidence it gave to the House of Lords inquiry into Universal Credit and is continuing to call for its removal. The Salvation Army is also urging the Government to:  

· Increase capacity to take phone claims so those who don’t have access to a computer at home or don’t have computer skills can make a claim
· Provide claimants with a breathing space period to provide someone with existing debt with legal protections from credit action. This will allow them to receive debt advice and engage with an appropriate debt solution.

Leave a Reply

Your email address will not be published. Required fields are marked *