New analysis: Deductions and sanctions for people on Universal Credit

Universal Credit will soon be the UK’s main means tested benefit for working age people, with most remaining claimants moving over by April 2026. Once fully rolled out, over eight million households could rely on Universal Credit for financial support.

Yet, while much debate has focused on whether payment levels are sufficient, the reality is that many claimants never receive their full entitlement.

Deductions for debt repayments and sanctions routinely reduce the amount households actually receive, undermining financial security and pushing many households deeper into hardship.

These deductions do more than lower income levels; they increase income volatility, making it harder for low income households to budget and plan ahead. This instability has far reaching consequences, particularly for housing affordability and the risk of homelessness.

To truly understand the impact of Universal Credit on poverty and financial insecurity, policymakers must look beyond headline award rates and consider what people actually receive in practice.

From April 2025 the government will introduce the Fair Repayment Rate, lowering debt deductions from 25% to 15%. But this change won’t protect families from multiple cuts at once like the benefit cap, two child limit or bedroom tax.

The Fair Repayment Rate is a step forward but it’s not enough. Our findings show that without urgent reform, sanctions and deductions will keep pushing families deeper into poverty.

In this report we call for an extension of the Fair Repayment Rate to other policies that reduce Universal Credit allowances, such as the benefit cap and the two child limit, alongside a new approach to sanctions to address the high level of appeals and 100% Universal Credit loss seen by claimants for minor issues.

Without further action, these hidden reductions risk entrenching hardship rather than providing the safety net Universal Credit was designed to be.

1.Millions of claimants don’t receive their full Universal Credit award, with single parents and carers hit hardest

• More than half (54%) of all low income households on Universal Credit households face deductions
• Debt deductions strip £40 to £50 a month from many claimants, which could cover food or energy bills
• 6 in 10 single parents and carers are repaying debt deductions
• Lone parents face a 3% increase in unaffordable housing risk when deductions are applied
• These groups are least able to increase their income, making deductions especially harmful

2. Most sanctioned claimants lose 100% of their Universal Credit standard allowance, leaving them with no money at all

• 81% of sanctions are overturned on appeal suggesting widespread wrongful penalties that increase administration as well as hardship
• Sanctions increase housing unaffordability sharply, with the proportion of affected households in unaffordable housing jumping from 75% to 85%

3. The impact of sanctions and deductions is clear

• Before deductions 1 in 10 claimants couldn’t meet their basic costs
• After deductions, this rises to 1 in 4 for couples with children, pushing them further into financial instability and crisis
• Households already struggling lose an average of £234 a month after deductions

4. Unaffordable housing is already a reality for most claimants

• 84% of private renters on Universal Credit live in unaffordable housing
• 43% of social renters face the same struggle

Universal Credit is meant to be a lifeline but for millions, it’s a debt trap. The government must act now to fix deductions and stop sanctions from pushing families into crisis.

We recommend:

1.DWP must assess financial hardship before deducting payments

Before applying debt deductions, affordability assessments must be mandatory, ensuring claimants can still afford basic needs.

Vulnerable groups, such as families with disabled children, should be protected from automatic deductions.

2. Stop automatic debt deductions and offer real financial support instead

The DWP should replace automatic deductions with proactive support, including debt advice referrals via the Money and Pensions Service.

Claimants should be given repayment options rather than having funds taken without flexibility.

3. Cap all benefit reductions to stop multiple deductions from pushing families deeper into crisis

The 15% Fair Repayment Rate cap must apply to all reductions, including:

• The benefit cap
• The bedroom tax
• Local Housing Allowance shortfalls
• The two child limit

Without this extended cap, claimants still face multiple simultaneous cuts that drive poverty.

4. Sanctions should be rare and proportionate and require an impact assessment

Sanctions must be reserved for serious breaches and not used as a default penalty.

Before sanctioning, DWP must assess the financial and housing risk to prevent extreme hardship.

With 81% of sanctions overturned on appeal, the system is clearly broken and in urgent need of reform.