Source · Select Committees · Work and Pensions Committee
Recommendation 39
39
The recovery of Tax Credit debt from claimants’ Universal Credit awards clearly presents problems.
Recommendation
The recovery of Tax Credit debt from claimants’ Universal Credit awards clearly presents problems. However, the option of returning responsibility to HMRC now would be too challenging to deliver in practice. Instead, we recommend that DWP should continue to collect these debts, but that recovery should only begin when the claimant has repaid their Advance (if they have taken one out). Repayments of any remaining debt should be capped at 10% of the Universal Credit standard allowance per month. Debts that have not been pursued for more than 6 years should be written off entirely, in line with the approach taken in the private sector. We also recommend that the FCA’s approach be extended so that it covers public sector debts, including tax credit overpayments and Advances in Universal Credit. This will help ensure that best practice from the private sector is reflected in DWP’s approach to debt. (Paragraph 170) Universal Credit: the wait for a first payment 85 Backdating
Government Response
Not Addressed
HM Government
Not Addressed
We understand the impact that debt can have on the wellbeing of claimants and we endeavour to ensure that the recovery of any overpayment is managed in a way that takes account of the claimant’s individual circumstances. Work Coaches are trained to gauge claimants’ financial needs from their first contact and can refer them to more specialist support for personal budgeting, money guidance and debt advice if required, including through the Money and Pensions Service (MaPS). Ultimately, the Department has an obligation to ensure that public funds are administered responsibly and to abide by the principles set out in Her Majesty’s Treasury’s guidance on Managing Public Money. Consequently, the Department writes off small amounts of recoverable debt. As mentioned earlier in our response, we believe our deductions policy, which includes a 30% reduction cap from the Standard Allowance, provides the right balance between a claimant’s need to meet their financial obligations and their ability to ensure they can meet their day-to-day needs. Unlike UC, tax credits are based on an estimate and only evaluated annually, leading to under and overpayment. Clearly it would be better if the estimates and evaluations were more accurate and timely to avoid such historic debt. While tax credits are still in place, we will continue to encourage HMRC to reduce historic debt.