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 of money that 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.
This report examines how deductions and sanctions shape household incomes, increase poverty and impact the ability to afford basic living costs, including rent. Without action, these hidden reductions risk entrenching hardship and fail to provide the safety net Universal Credit was designed to be.
Universal Credit should be a foundation of financial stability, not a source of sudden shocks. Too often, what people actually receive falls far short of their entitlement. This gap isn’t just unfair, it’s driving up poverty, stress and housing insecurity. Our research shows that deductions and sanctions are leaving far too many households unable to meet even their most basic needs.
Rory Ewan, Policy in Practice
Findings
This research shows that poverty and an inability to afford housing costs are widespread amongst people who receive benefits and this is exacerbated by debt deductions and sanctions.
From April 2025, the Government has introduced a new cap on the level of debt deductions that a household can pay back. This has been reduced from the current 25% to 15% of the standard allowance and has been termed the Fair Repayment Rate.
This Fair Repayment Rate has been widely welcomed as a way of increasing household income for the lowest income households. As carers and single parents are the most likely to be repaying debt at above 15%, the policy also targets these groups.
Whilst this represents a welcome step forward and is a targeted policy that best supports single parents and carers, the failure to consider all reductions to a benefit award risks households being placed under multiple forms of reductions at once.
- Spread of deductions. Millions of claimants don’t receive their full Universal Credit award, with single parents and carers hit hardest
- Spread of sanctions. Most sanctioned claimants lose 100% of their Universal Credit standard allowance, leaving them with no money at all
- Deductions and housing affordability. More than 8 out of 10 low income private renters on Universal Credit live in unaffordable housing
- Deductions and poverty. After deductions 1 in 4 couples with children can’t meet their basic costs
Recommendations for policymakers
The findings from this research inform a number of recommendations:
- DWP should consider conducting affordability assessments, taking account of a claimant’s full financial circumstances, before applying any debt deductions to a claimant’s award. This is particularly needed for at risk and vulnerable groups such as those with the disabled child element
- DWP could take a proactive approach to support those with debt rather than automatic application of deductions. This should include an offer of referral to the Money Advice Pension Service for debt advice
- The cap on deductions within Universal Credit should cover all policies that reduce benefit support, including the benefit cap, bedroom tax, Local Housing Allowance, and two child limit
- Sanctions should be reserved for serious infringements of contract and should only be applied following an impact assessment
Methodology
This research analysed the Universal Credit data share from eight local authorities. The DWP provides this data daily to local authorities for the administration of council tax reduction and other locally administered benefits.
Participating authorities want to understand the impact of deductions on the design and targeting of local welfare support including council tax support. The data set provides detailed information on household income, benefits and household composition. Household records contain full Universal Credit awards and how these are calculated, as well as deductions that are made prior to payment.
Lloyds Bank Foundation for England & Wales is delighted to support this new research by Policy in Practice into the continuing problems with Universal Credit. While the new government has taken a very positive step to lower the maximum rate of deduction to 15%, this research shows that many people are still being left in poverty as a result of the combination of this and other ways UC is reduced, particularly the Housing Element. This is especially worrying in the context of the Department for Work and Pensions’ plans to move disabled people in the ESA Support Group across to UC over the course of the next 12 months. It is essential that ministers seize the opportunity of DWP’s review of UC to resolve these ongoing flaws with the way it operates as well as properly address the inadequacy of its basic Standard Allowance in the coming months. In the meantime, we hope local authorities will consider carefully their own approach to deducting rent and Council Tax arrears directly when residents are already having to live on much less than the minimum the government says is needed to pay for their basic essentials.
Marc Francis, Lloyds Bank Foundation for England & Wales
