CCR Magazine

CCRi banner ad
You are here  :Home arrow News arrow Collections News arrow Benefit deductions risk pushing people deeper into debt
Contact Us Newsletter Signup RSS Feeds

Benefit deductions risk pushing people deeper into debt PDF Print E-mail
Thursday, 14 September 2017
The use of direct deductions from people’s benefits, by utility companies, housing providers, councils and others, to cover arrears payments is making it more difficult for families to pay for essentials and is forcing many to use credit to keep on top of bills. This is according to new research released today by StepChange Debt Charity [1]. The charity is warning that the introduction of Universal Credit and rules that will allow for greater amounts to be deducted from benefit payments risks exacerbating these problems.  

The process known as ‘third party deductions’ (TPD) involves the Department for Work and Pensions (DWP) deducting a fixed amount from benefit payments to clear household arrears, most commonly housing costs, fuel costs, council tax, unpaid fines, and water and sewerage charges. The amount deducted is paid directly to a creditor until the debt is cleared. At present the level of deduction is set by DWP at £3.70 per bill, per week. However under Universal Credit the amounts that can be deducted are significantly higher.

Research conducted by StepChange Debt Charity highlights how TPDs can deepen existing financial problems. In a survey conducted with the charity’s clients, of those who had such deductions, 71% of respondents said that it had caused their family hardship, 40% reported falling behind on essential household costs and a quarter said they found it difficult to pay for food, clothing and heating. Where cutting back spending was not viable, 1 in 5 of the charity’s clients with TPDs said they had to resort to credit in order to keep on top of essential bills.

A Freedom of Information request by the charity revealed the scale of TPD use, with 1.1m deductions occurring in a typical month. The practice was one familiar to the charity’s clients, with just over a quarter (26.5%) reporting they have had money deducted from benefits to go towards arrears, and those in a vulnerable position even more likely (28.6%) to be subject to the practice [2].

The charity is concerned that the higher amounts that can be deducted under Universal Credit will push those already in financial difficulty into further hardship. The charity’s modelling shows that for those with very tight budgets, the imposition of a TPD can leave a person without enough money to even cover their basic household bills, and that this is even more likely under Universal Credit.

The charity is also raising concerns that the existing process can also create perverse debt collection practices. Many creditors, including some who cannot get TPDs, use the DWP-set level of £3.70 per week as a minimum for arrears repayments outside of the TPD process. This is problematic and can lead to people repaying at a level that is not sustainable.

The charity recommends that deductions should be affordable for all, with the creation of a new minimum level of £1 deductions, and greater consideration by creditors to avoiding deductions at all when they are unaffordable or where the individual may be vulnerable.

Mike O’Connor, Chief Executive of StepChange Debt Charity, said: “Direct benefit deductions straddle the line between good and bad debt collection, offering a way of repaying debt and managing bills for many, while exacerbating problem debt for those who can least afford it.

“With the ongoing roll out of Universal Credit raising the amounts that can be deducted from benefits, the Department for Work and Pensions as well as creditors must take steps to ensure deductions do not worsen problem debt for the most vulnerable.

“Third party deductions should only be used when they are affordable and helpful to individuals, allowing them to keep up with essential bills. Regulators must provide guidance to firms on supporting vulnerable clients and steer them away from using deduction rates as a benchmark for debt collection.”
3 October - Guoman Tower Hotel, Central London 

CCRInteractive, in association with Marston Holdings , is the largest and leading one-day conference from the publishers of CCRMagazine – a truly national and international event for the credit industry.

This landmark event allows delegates to: Learn best practice of how to increase profitable sales in today’s economy. Understand the key compliance issues and how they will impact upon you. Discuss the legislative and regulatory framework and how it will effect you. Consider the potential effects of Brexit on your business. Discover the latest innovations in the market to improve your collections. Motivate your staff to achieve ever improved results.

To book to attend in 2017, contact Stephen Kiely  or Alison Lucas. To find out more about being part of this landmark event, please contact Gary Lucas

 Forums International Ltd

Forums International Ltd

 Attendance at your first meeting is free of charge, and please quote reference 'CCR2016' to receive the special 10% discount off of your first annual subscription.

Find out more here.

latest issue

CCR Cover

The latest edition of CCR Magazine, the leading editorial publication in the UK credit industry, is out.

Read the latest issue online

Collections Sponsor

This Collections News section is currently available for sponsorship.

Please click here to contact us about our site sponsorship opportunities. 

The Credit Excellence Awards


Tuesday 3 October - Guoman Tower Hotel, Central London

Do not miss your chance to meet and network with the Winners and Finalists at the Credit Excellence Awards, in association with Hoist Finance.

To book your place to attend, please contact Alison Lucas.


CCR is the premier magazine for consumer and credit professionals. It provides an independent voice to the industry, breaking major news stories and running in-depth features.

As a magazine, it works with and campaigns on behalf of the credit industry to promote its importance as a centre of potential profit and business development to the wider business world.

Subscribe to CCR Magazine

CCR World Magazine


Providing information and analysis for thousands of senior credit professionals worldwide, every quarter.

Find out more

GTS Media Ltd
81 Cambridge Road

Registered in England No: 05483197