Nearly £480m deducted from tenants' universal credit through 'unlawful' process

Nearly £480m has been deducted from tenants’ universal credit through a process the High Court deemed “unlawful and unfair”, The i Paper can reveal.

Since 2017, the Department for Work and Pensions (DWP) has deducted tenants’ UC at the request of their landlord if the claimants are in rent arrears.

This process aims to protect tenants from being evicted over their arrears.

However, the High Court last month found the deductions are “procedurally unfair”, and hence “unlawful”, as the tenants themselves were not being consulted in the process.

This meant that crucial information was being overlooked, such as whether there was any existing dispute about the tenants’ liability to pay rent or their intention to leave the property.

Up to 10.3 million deductions for rent and service charge arrears, worth £479m, have been made via the process, a freedom of information request shows.

A spokesperson for the DWP said it is “carefully considering” the recent ruling and remains committed to “protecting claimants from falling into debt”.

Emma Varley, associate at the legal firm Bindmans, which led the case, said: “The impact of the court’s decision is that the DWP, as a matter of procedural fairness, must now ask UC claimants what they think about the proposed deduction before it is made.

“That presents a significant change in the way that the DWP will have to process these deductions going forward.”

The DWP did not comment on whether compensation will be paid to claimants whose benefits were deducted through the process, but reforms in the way deductions are made are expected in light of the ruling.

One Government source told The i Paper: “This wrongly happened under the last Conservative government and was never addressed.

“This Labour Government is going to do things differently.”

UC claimants in social housing could also have their benefits deducted to pay their rent, without being consulted, even if they were not in arrears.

This process, which does not apply to private renters, was also deemed unlawful in the High Court case.

The case was brought by UC claimant Nathan Roberts after £500 was deducted from his benefit to cover rental payments and arrears at the request of his landlord, with whom he was in dispute over repairs.

Francesca Albanese, executive director of policy and social change at Crisis, said: “We welcome this judgment which recognises decisions made to people’s benefits without prior notice, particularly deductions, cause additional stress and hardship to people who are already struggling.

“Alongside the changes that will result from this ruling, the Government must also look at how it will mitigate the risk of people being turned away from a tenancy if they have a history of rent arrears.

“The underlying issue here is an inadequate welfare system which means that people in need of support can’t afford to pay for their rent and other essentials like food and heating and puts people at risk of losing their home.”

Polly Neate, chief executive of the housing charity Shelter, described the deductions as “cruel”, adding that they risk pushing people into further financial distress.

“Decades of failure to build enough social homes has left people shelling out eyewatering sums for private rents – all while housing benefit still does not even cover the lowest third of rents,” she said.

“Renters who depend on housing benefit are facing large shortfalls, forcing them to cut back on essentials or skip meals to keep a roof over their heads. Many people use Universal Credit payments to make up the difference which makes unexpected deductions – sometimes made even if they don’t owe rent arrears – especially cruel, pushing people deeper into financial distress.

“As an immediate relief, the Government should unfreeze local housing allowance, so it does what it’s meant to do: help people pay their rent.

“But to end the housing emergency for good, the Government must invest in social homes with rents tied to local incomes in the June spending review – we need 90,000 a year for ten years.”

A DWP spokesperson said: “We are now carefully considering this judgment and remain committed to protecting claimants from falling into debt.

“In April, we are introducing a Fair Repayment Rate for Universal Credit meaning that the maximum amount of someone’s benefits that can be deducted, including for rent arrears, is reducing from 25 per cent to 15 per cent.”

And in the meantime, Labour’s planned benefit spending cuts have reportedly risen to £5bn as the Government scrambles to slash its welfare bill.

DWP Secretary Liz Kendall is believed to be pushing to re-invest much of the money saved into expanding back-to-work programmes for the long-term sick.

But the Treasury is keen to use the savings to avoid spending cuts and tax rises later this year, the The Times reported.

Benefit claimants may also have to open up their bank accounts to the Government under plans being considered by ministers to crack down on welfare fraud.

Reforms to the benefits system will be unveiled in the spring as the Government tries to get to grips with the soaring welfare bill.

These changes will be outlined in a Green Paper, which is expected to include an overhaul of Personal Independence Payments (PIP) and other disability benefits.

A review of the eligibility criteria for PIP to reduce the number of people entitled to the benefit is expected as part of the reforms.

Meanwhile, Chancellor Rachel Reeves has already announced that she will implement savings proposals made by the Conservative government involving reforms of the work capability assessment (WCA).

The Work and Pensions Secretary Liz Kendall will put forward Labour’s own proposals in the spring, but concerns have been raised that hundreds of thousands of people with mobility and mental health problems may have their benefits slashed under the plans.

Reported reforms under consideration would include tightening welfare eligibility rules, and cutting the benefits of more than 400,000 people, costing them up to £4,900 each a year.

It is estimated that the plans, developed under the Tories, could save £2.8bn, but they have been condemned by disability charities as being a “reckless and dangerous” way to raise funds.

Officials have reportedly been asked to explore how the Government could mirror the “open banking” system, which is increasingly used by lenders and landlords to understand the true state of an applicant’s finances.

The moves comes as part of the Government’s pledge to carry out “the biggest fraud crackdown in a generation“.

Almost £10bn was lost to fraud and error last year, official figures show. And around £35bn has been incorrectly paid to those not entitled to the money since the pandemic.

“The Government is bringing forward the biggest fraud crackdown in a generation, saving the taxpayer £1.5bn over the next five years, part of wider plans that will save £8.6bn by 2030,” the DWP said.

“Our Fraud, Error and Recovery Bill includes an eligibility verification measure, which will require banks to share limited data on claimants who may wrongly be receiving benefits — such as those on universal credit with savings over £16,000. This will not give DWP access to benefit claimants’ bank accounts.”

Jasleen Chaggar, the legal and policy officer at Big Brother Watch, a privacy campaign group, said the plans would yield “unprecedented financial intrusion”.

She told The Times: “Mandatory open banking would give DWP civil servants constant access to the bank statements of welfare recipients, revealing deeply private information about their movements, associations, political donations, sexual preferences and religious beliefs.”

Labour’s Renters’ Rights Bill is set to expand protections for private renters, including by allowing them to stay in their home until they decide to end the tenancy by giving two months’ notice.

The bill will also seek to prevent landlords from discriminating against potential tenants for receiving benefits or having children.

Under the proposed legislation, the threshold for eviction will be increased from two to three months’ arrears, while the notice period will rise from two to four weeks.