Household Debt

Baroness Lister of Burtersett Excerpts

Monday 13th November 2017 Lords Chamber

[Baroness Lister of Burtersett (Lab)]

My Lords, I, too, am grateful to the right reverend Prelate, not least as I am unable to take part in Thursday’s debate on universal credit. It is on universal credit that I want to focus, because, as Citizens Advice and the National Federation of ALMOs have warned, UC is exacerbating household debt and rent arrears.

It is hardly news that the built-in six-week wait for the first UC payment is the source of many of the immediate problems being reported. It is therefore encouraging that there are strong hints that the Government will think again and reduce that wait to four weeks, as recommended by the Work and Pensions Committee. However, at the risk of appearing ungrateful, I fear that, while it will mitigate UC’s problems, it will not solve them.

Even a four-week wait will cause serious difficulties for many people moving on to UC. The Citizens Advice survey found that only one in six were able to rely on their own resources from savings or final wages to tide them over. This is not surprising given that the FCA found that nearly one-third of UK adults show low financial resilience for reasons such as inability to cover living expenses for even a week if they lost their main source of household income. Recent evidence from KPMG, the Living Wage Foundation and StepChange underlines the extent of debt and reliance on high-cost credit such as payday loans just to get by among those in low paid and/or insecure employment. Do the Government have any information about the number of people claiming UC who are already in debt or arrears? Even if not in debt, they are unlikely to have savings to fall back on, as was clear from the impact statement on the increase in the number of waiting days.

Despite the Government’s assurances, additional payments are not the answer; they are deductible loans and a recent Smith Institute study found reluctance to borrow from the Government, as they saw it, among some UC claimants. Beyond the six-week wait lies a more fundamental problem: the monthly assessment and payment of UC. The Government insist on this on the grounds that it will increase financial responsibility and readiness for the labour market, but the latest ONS statistics show that nearly one-quarter of those in the lowest pay quintile are still paid more frequently than monthly and according to the Resolution Foundation nearly three-fifths of new UC claimants moving from paid work in the last tax year had been paid more frequently than monthly. Those in the Citizens’ Advice survey who were struggling with monthly payments faced an increased risk of financial hardship. While the majority might be able to cope, some are clearly finding it really difficult. At the very least why can they not be given the choice to receive fortnightly payments, as in Scotland? Instead, those who struggle are offered help with budgeting, which is quite insulting to those who managed their money reasonably when it was received more frequently.

This brings me to the issue of universal support. In the recent Commons debate, the Minister responded to lain Duncan Smith’s call for,

“extra effort, focus—and money, when necessary”—[Official Report, Commons, 18/10/17; col. 883]—

for the rollout of universal support alongside UC, with an assurance of the Government’s continued focus on it and recognition of its “absolute value”. However, when I talk to people working on the ground they just laugh at the mention of universal support and say that the resources are quite inadequate and its remit too restrictive. Will the Minister ask the DWP to provide us with a report on how universal support is working? Not only does universal support appear inadequate to the task but, as predicted in your Lordships’ House, the replacement of the Social Fund by discretionary local welfare assistance schemes without any ring-fenced funding has meant that in many areas this is no longer an alternative source of support in face of debt, because many authorities have closed or significantly cut back on their schemes. According to the Centre for Responsible Credit this,

“has left people facing destitution for lengthy periods of time”.

This underlines how we need to put the rollout of UC in the wider context of social security cuts since 2010, totalling a cumulative £27 billion a year by 2020-21. Analysis from a number of organisations indicates that these cuts, including and especially cuts to UC itself, will have a seriously adverse impact on child poverty. This can only mean that the problem of debt and arrears will get worse, with all the consequent human suffering and adverse effects on physical and mental health that this entails. It is in the Government’s hands to prevent such an outcome, starting in next week’s Budget.