Pause deductions from benefits to ease cost of living crisis, MPs say

Automatic repayments to the Government and others owed by people claiming benefits should be put on hold to help households struggling with huge financial pressures during the cost of living crisis, MPs say today.

With inflation set to peak at its highest level for 40 years, the report from the cross-party Work and Pensions Committee highlights how the deductions from benefits, usually taken to recover money owed for a variety of debts and advances, are pushing some people into hardship and leading them to depend on foodbanks.

The Committee calls on DWP to pause the deductions and restore them gradually only as the rate of inflation reduces, or when benefits have been increased to accurately reflect the rise in prices.

In addition, the Committee recommends that the Government reviews and increases the benefit cap - which has remained frozen since it was lowered in 2016.

During the inquiry, MPs heard concerns that the current cost of living crisis, caused by rising energy, fuel and food costs, has exposed longer standing problems with the adequacy of the social security system. While measures announced by the Government have been broadly welcomed, the report urges the Government to limit the use of one-off payments and prioritise other options, with regular, predictable income better for households trying to manage a budget.

With the uprating mechanism for benefits falling out of step with spiralling inflation, the Department must work to increase the speed with which changes can be made to legacy benefit and state pension rates. The report concludes that current legacy benefit IT systems are not fit for purpose, with the April rise in benefits based on the inflation rate from seven months earlier.

Rt Hon Sir Stephen Timms MP, Chair of the Work and Pensions Committee, said: “Inflation is at a 40 year high, with spiralling energy, food and fuel prices adding up to a cost of living crisis not seen for a generation and a bleak outlook for many families. Deductions by DWP from benefits are contributing to the hardship and the Government should give those struggling some much needed breathing space by following its own advice to other creditors and pausing repayments until the threat of inflation recedes.

Ministers also need to urgently review and uprate the benefit cap. The decision to exempt cost of living payments from the cap suggests the Government knows it is set too low to effectively cover households’ now rapidly rising costs. 

A properly functioning social security safety net should be agile enough to respond to worsening economic conditions, but the high levels of inflation have laid bare the dysfunctional nature of parts of the system - not least that any increase in benefits is already seven months out of date when it takes effect.

While the Government’s emergency measures and one-off payments are welcome, there is no substitute for regular, predictable income when it comes to households trying to get by. Lump sum payments may not be needed if uprating was not so impotent in the face of rising prices. The Government must urgently increase the speed with which the DWP’s systems can make changes to benefit and pension rates to make sure the social security safety net lives up to its name for the most vulnerable people in our society.”

Main findings and recommendations

Benefit cap

• The decision to exempt cost of living payments from the benefit cap suggests the Government knows the cap is set too low to effectively cover households’ now spiralling cost of living. The benefit cap should be reviewed urgently— and certainly no later than the end of 2022—to ensure it is in line with average household incomes and increasing rent/energy/food costs.

Deductions

• Deductions from benefits from the DWP are contributing to hardship with some households being pushed into destitution and leading them to depend on food banks. Deductions should be paused, and then only restored gradually as the rate of inflation reduces, or when benefits have been uprated to reflect the current rate of inflation.

Uprating social security

• The systems that legacy (pre-Universal Credit) benefits run on are not fit for purpose and it is disappointing that the DWP has not adapted its IT systems to allow for uprating to respond to changes in the economic context (the April 2022 rise, when inflation was already 9%, was based on the CPI rate from September 2021, which was 3.1%, causing a real-terms fall in income). The DWP must work to increase the speed with which changes can be made to legacy benefit and state pension rates.

• The DWP should reduce the length of time between the inflation reference period and the uprating implementation date to allow more flexibility in the system, preferably to the previous quarter end or more recent if possible.

• While £1.5bn for the Household Support Fund is welcome, the Committee is concerned that there is no information available to indicate where the funding is going. The need for such funds highlights that benefits are already set at subsistence levels for most, leaving no capacity for individuals to cope with short term shocks. The Government should review the adequacy of benefit levels and publish its findings.

• Local Housing Allowance should be increased to support people on low incomes to access secure, affordable housing in their local area.

Pension Credit

• With around 850,000 eligible households not claiming Pension Credit, the Government should work with stakeholders to develop a written strategy to increase take-up by the end of the year.