Source · Select Committees · Work and Pensions Committee
Recommendation 19
19
Paragraph: 107
The Department continues to claim that Advances are not loans, but we find that argument...
Conclusion
The Department continues to claim that Advances are not loans, but we find that argument impossible to accept. Advances must be repaid at a set rate, over a set period. The Department risks misleading claimants, and damaging its own credibility, if it insists on denying the obvious fact that Advances are interest free loans. Unlike firms in the consumer credit sector, where the FCA’s guidance stipulates that repayment rates should be set at levels that are affordable, there is no equivalent body that regulates public sector lending. While Advances can be a vital source of income for new claimants waiting for a first payment, we are concerned that some people find that they are unable to afford repayments later on.
Paragraph Reference:
107
Government Response
Not Addressed
HM Government
Not Addressed
A new claim Advance is not a loan. It allows for UC entitlement to be spread over thirteen payments rather than twelve in a year. Use of incorrect terminology in this respect will only serve to dissuade claimants in genuine need from making a claim to UC. To avoid claimants receiving more of an Advance than they require, New Claim Advances are limited to the claimant’s estimated monthly award. In addition, all claimants are encouraged to consider the amount of Advance they request and the impact of this on UC payments they will receive over the following year. More generally, Work Coaches gauge claimants’ financial needs from their first interview and can refer them to more specialist support for personal budgeting, money guidance and debt advice if required, and we have invested a further £38m in the Money and Pensions Advisory Service this year to support those claimants affected by COVID-19. For claimants who find themselves in unexpected hardship, the impact of taking an advance on the spreading of UC payments can be deferred for up to three months. The Department is considering the policy of automatic referral for budgeting support to the Money and Pensions Advisory Service,