More than a million have benefit payments cut for historical – sometimes erroneous – overpayments

Business

The government is cutting benefit payments to some of Britain’s poorest families or threatening them with debt collectors in a raid that is “plunging people into poverty”. 

More than a million people have had their universal credit payments cut over the past year because they were overpaid tax credits in the past by HMRC.

Some of these debts are decades-old and in many cases the claimant was not at fault for the overpayment or aware that the debt existed.

Campaigners and MPs called on the government to immediately pause the deductions, an approach that they warned was causing widespread destitution at a time when people are already struggling with the cost-of-living crisis.

Millions docked because of historical overpayments

Official figures obtained by Sky News show that last year 1.3 million universal credit claimants had payments docked because of historical tax credit overpayments.

It’s a figure that’s been on the rise.

More on Benefits

In total, the Department for Work and Pensions (DWP) deducted £372.576m from claimants on HMRC’s behalf.

Tax credits were introduced in 1999 by the then Labour government to encourage people into work by offering support payments to parents and those on low incomes.

The system is being phased out and people on tax credits will all have moved to Universal Credit by the end of next year.

In 2014 the Treasury agreed with the DWP that, as previous tax credit claimants moved onto Universal Credit, their old tax credit debts would be transferred and collected under the new system.

Blaming claimants for HMRC errors

While HMRC maintains that many of these erroneous payments are down to fraud or errors made by the claimant, a significant number are attributable to errors made by officials.

Charities warned that in some cases HMRC was blaming claimants for errors of its own making.

Michelle Welch from Bromley, south London, is one such case. She was facing deductions of £20 a month to recover an eight-year-old debt of £2,379.26.

The mother of three, who now works part-time at a British Heart Foundation charity shop, was hospitalised in October 2015 after suffering a mental health crisis.

Although a support officer telephoned HMRC to explain that she was no longer caring for her three children, HMRC did not stop the payments and the money continued being paid into a bank account that her partner was accessing to support her children.

After multiple attempts to notify the agency, the payments eventually stopped on 28 January 2016.

Years later, in August 2021, HMRC wrote to Ms Welch demanding that she repay the money the agency overpaid in the interim. They claimed she failed to notify them of her change in circumstances in time and her universal credit was docked as a result.

Ms Welch’s multiple appeals were rejected.

“I’m just living day by day. I can’t save. I can’t go out… I could put that extra money on gas and electric,” she said.

“I just feel like I’m not getting anywhere. I’m not getting anywhere fast.”

After Sky News intervened, HMRC agreed that Ms Welch was not at fault and has now cancelled the debt.

“We apologise to Ms Welch for the inconvenience and upset caused by our mistake,” HMRC said. “We’ve acted to correct her payments and a redress payment will be made.”

Ms Welch said her dealings with HMRC and DWP had left her feeling dejected, ignored and stuck in what was a difficult time in her life.

“It’s hard for a mother to give up one child let alone three because they’re mentally unwell. It wasn’t an easy thing to do. [It takes me back to] a place I would never want to be in again. It makes me feel ashamed and terrible.

“I busy myself so that I don’t have to think back to what I went through and what my children went through. It’s something I should talk to a psychiatrist about, not people I don’t know [at HMRC and DWP].”

Not an isolated case

Sky News spoke to dozens of claimants who said they were paying back debts they do not believe, or did not realise, they owed.

Many struggled to get a clear breakdown or explanation from HMRC when they challenged the demands for payment.

Vicky Timlin, from Cheltenham, ended a tax credit claim in September 2021 after moving in with a partner.

She was then told to repay back £909.29 that had been overpaid to her. When she sought an explanation, an HMRC representative told her that the overpayment could only be explained by a “computer glitch” but she would have to repay it regardless.

Ms Timlin is not claiming Universal Credit so her payments have not been docked.

However, HMRC has warned her that the debt will be recouped through any future universal credit claim. Her debt has now been passed onto a private debt collection agency and she is on a payment plan for the next seven years.

Sky News understands that 29,000 cases are now being handled by private debt collection agencies.

“I felt completely helpless. I got off the phone and I was in absolute floods of tears because I just felt like this is so unfair.

“Why have I got to pay this money because of a computer glitch and there was literally nothing that I can do about it and they didn’t seem to care at all,” she said.

“They shouldn’t be doing it to people. They need to be able to explain to people properly why they owe this money and not give them different excuses every time.”

HMRC accepted that Vicky did nothing wrong and apologised for its failure to clearly explain the debt to Ms Timlin.

It maintained that she had been overpaid because previous re-calculations of her entitlement had triggered the system to generate duplicate payments.

It said this was a feature of the system and that these overpayments would have balanced out across the remainder of the financial year had she continued with the claim.

“To ensure customers receive regular payments of a similar amount, tax credits awards are calculated across the 12-month financial year,” HMRC said.

“Customers are required to tell us of any change in circumstances and when they do, awards are recalculated and balanced across the remainder of the period. This means when a claim ceases during the financial year, in some instances an overpayment may be due.”

Official errors disguised

Official reports published by HMRC suggest that errors on the part of officials make up a very small proportion of overpayments, compared to fraud and errors on the part of claimants.

However, charities pointed out that in many cases officials were contributing to errors by providing poor advice on the phone. In the case of Ms Welch, official error was disguised as a claimant error.

Campaigners say the system is causing widespread distress at a time when the cost-of-living crisis is already driving families into poverty.

Food bank visitors in debt to the government

The Trussell Trust, which oversees a network of more than 1,300 food banks across the UK, has said the vast majority of its visitors were in debt to the government.

MPs from across the political spectrum have urged the government to pause collections while the cost-of-living crisis is still raging.

Stephen Timms, MP for East Ham and chair of the work and pensions select committee, said: “People are completely unaware of these debts when suddenly money starts getting taken out of their Universal Credit monthly payments and, in a cost-of-living crisis with inflation running at current levels, that’s causing real hardship for people.

“So my select a committee, which is an all-party committee with a Conservative majority, recommended that the government should pause these deductions while inflation is running at its current level.

“Unfortunately, the government rejected that recommendation, but I think that would be very helpful just to support people through this really, really difficult time.”

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