Deductions from universal credit for hostel service charges

News and developments

Since the introduction of universal credit, hostels have reported that it has become more difficult to set up deductions for service charges. 

Published August 2022

A policy change that leaves vulnerable people behind

Universal credit is an online benefits system designed to encourage claimants to manage their own money.

Universal credit has largely replaced the previous legacy benefits system, which includes income-related employment and support allowance (ESA) and income-based jobseeker’s allowance (JSA). Legacy benefits can help vulnerable people in homeless hostels to keep on top of their service charge payments through third-party deductions for ongoing accommodation payments. This support is not available through universal credit.

The DWP pays universal credit monthly. The government expects claimants to be able to budget and pay their bills without the DWP’s involvement. It is a blanket approach for all claimants that assumes everyone can keep up.

A single monthly payment might work for some people, but it isn't working for some of the most vulnerable. The knock-on effect this is having on hostel residents has been explained by Camden Council’s Housing Commissioning and Partnerships Manager.

No mechanism to manage ongoing service charge payments

Homeless hostels offer temporary supported housing primarily to rough sleepers and people with complex needs. Hostel staff have reported that residents often find it difficult to manage their money.

Hostel residents can claim housing benefit and have it paid directly to their landlord. Housing benefit only covers rent. It doesn’t cover services such as meals and non-communal costs of gas, electricity, water, and cleaning, which must be paid from the resident's other income. Most hostel residents receive universal credit in addition to their housing benefit. Others still receive legacy benefits, but the government plans to move everyone over to universal credit by 2024.

Third party deductions

Residents who claim legacy benefits can ask the DWP to set up 'third party deductions' to help them to pay their service charges on time. The DWP takes money from a resident's benefit and pays it directly to their landlord, before paying the remaining entitlement to the claimant. The DWP can set up deductions for ongoing service charges as soon as someone moves into a hostel. This proactive measure has helped to prevent vulnerable residents from falling into arrears.

Under universal credit, the DWP can only set up third-party deductions from the standard allowance for service charge arrears. The deductions do not cover ongoing service charges. 

The government has explained that third-party deductions are meant to be used as a last resort and only when the claimant is in arrears, saying they are "intended to support the overall aims of universal credit, ensuring claimants take responsibility for budgeting their income".

Alternative payment arrangements

The DWP can set up alternative payment arrangements (APAs) from universal credit if it believes the claimant is at risk of financial harm. For example, the DWP can pay the housing costs element directly to the landlord or make more frequent payments.

An APA cannot be set up for deductions when the resident receives housing benefit and is liable to pay separate service charges in addition to their rent. As a result, the rent is paid directly to the landlord but the service charges are not. That means the policy does not meet its intended aim of protecting vulnerable people from eviction by paying their accommodation costs directly. 

Without the same level of support, that is offered under the legacy benefits system, it is inevitable that some residents will fall into debt with their service charges. Service charge arrears can lead to eviction or cause problems when residents are trying to move on to settled accommodation. 

Universal credit excludes some residents from deductions

The DWP can refuse to set up deductions for some hostel residents, even when they are in arrears with their service charges.

The DWP can only set up deductions for service charge arrears when a resident is entitled to the housing costs element of universal credit or housing benefit for 'exempt accommodation.' Some hostels are not defined as exempt accommodation, including hostels that are managed by a local authority. 

Difficulties supporting residents to apply for deductions

Many vulnerable residents are unable to engage with the digital-first approach of universal credit. Some struggle to use their online journal without support. This could be due to a disability, language barriers, or lack of access to a computer or smartphone. If they have a non-digital claim, there can be long waits to get through to the universal credit helpline.

Support staff at hostels often contact the DWP to request deductions on behalf of their residents. This is relatively straightforward for residents in receipt of legacy benefits, but the guidance is unclear about how hostels can apply to set up deductions from universal credit. Practitioners find the process confusing. This is exacerbated by difficulties contacting the DWP. Many residents experience delays getting deductions set up, or do not get them set up at all.

For residents who manage to get deductions set up, the amount taken from their universal credit can change from month to month. When someone has multiple debts, the DWP ranks them and only makes deductions for the top three priority debts. This makes it difficult for residents and hostel staff supporting them to keep track of debt repayments.

How housing providers can support residents to manage their money

The lack of clear DWP guidance and processes means that a significant amount of people's time and resources are spent just trying to get deductions set up to pay off arrears. 

Some hostel staff have concentrated their efforts on helping residents to apply for a bank account and set up standing orders. Many homeless people are financially and digitally excluded, so accessing banking remains a challenge for hostel residents.

Residents can ask for an alternative payment arrangement so their universal credit is paid more frequently, which might help them to budget for service charges.

Household support fund

Residents can apply to their local authority for help from the Household Support Fund if they are struggling with ongoing service charges and arrears payments. Hostel service charges cannot be covered by a discretionary housing payment (DHP).

The Household Support Fund initially covered the period from 6 October 2021 to 31 March 2022. It has been extended to 31 March 2024.

Further resources

Shelter Legal

Claiming benefits when staying in a homeless hostel - benefits to pay for a hostel, deductions from benefits for service charges, and charges covered by housing benefit

How and when universal credit is paid - universal credit is usually paid once a month but the DWP can alter this arrangement

Commentary

How universal credit rules stop hostel residents from moving on - Brian Matthews from Camden Council explains how residents are affected by problems with deductions

Gov.uk guidance

DWP Alternative Payment Arrangements - government guidance covering alternative payment arrangements including how they work and case studies

About the author

Sarah Ventress worked as a welfare benefits specialist at Shelter and now works in policy at the DWP.