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Supporting claimants with budgeting
and debt problems: the challenges
and lessons learned
The DWP role and priorities for action
Graham Mowat
Head of Budgeting Support & Indebtedness
31st July 2013
Department for Work and Pensions
1. Welfare Reform
2. Universal Credit
Financial Products, Budgeting Support (Money Advice) & Alternative Payment
Learning from DPDP & the LA Led Pilots
Local Support Services Framework
3. Social Justice – definitions and priorities
Problem Indebtedness as an SJ priority
Legal High Cost Credit
Alternatives - Credit Unions
Illegal Money Lending
Department for Work and Pensions
Overview (1)
The Reform Story
• The Welfare Reform Act introduces the most fundamental reforms to
the social security system for 60 years. It aims for a simpler, fairer
benefits system and to ensure work pays.
• Money needs to be targeted more effectively; we have to ensure that
support continues to be available to those who need it most.
Employment must be an aspiration for everyone who is able to work.
• Our services need to change to reflect the diversity and complexity of
the issues that many people in society face today, requiring more
joined-up working across government and beyond.
“A system that
was originally
designed to
support the
poorest in
society is now
trapping them
in the very
condition it was
supposed to
Iain Duncan-Smith,
Secretary of State for
Work and Pensions
Overview (2)
The Reform Story
• We are introducing greater fairness to the welfare and pensions systems by making
work pay and reinvigorating incentives to save for retirement, whilst protecting the
most vulnerable – disabled people and pensioners.
• The nation’s finances also need to be put on a more sustainable footing – while this
means making difficult decisions on tax and spending, we believe it is possible to do
this and help people lift themselves out of poverty, and stay out of poverty, through
work and saving backed by the right support and encouragement.
• Our Reforms will:
- ensure people are always better off in work than on benefits
- provide unconditional support for disabled people that need it
- prepare the long term unemployed for the world of work
- ensure people receive a fairer pension and are encouraged to save for retirement
- support separating families.
Welfare Reform and Universal Credit
A policy
that tackles welfare dependency, poverty and worklessness by
making work pay
A benefit
that replaces a complex system of working-age (in/out work
benefits and credits) with the Universal Credit and a single set
of rules
A gateway
that together with our employment support programmes,
helps people into work
A platform
largely self service; internet-age and digital - whilst
continuing face-to-face support for those who need it
An ambition
transforming lives and society through work
Context - Claimant Preparation
We want to help
people to be able
to manage their own
finances successfully,
whether they are
in or out of work
Housing costs
direct to tenant
Single payment
to household
Universal Credit Personal Budgeting Support –
managing their
Department for Work and Pensions
Alternative Payment Arrangements
• For a minority of claimants, alternative payment arrangements may be
required; these might include
– paying the rent directly to the landlord, from the outset
– making more frequent than monthly payments
– splitting the payment within the household
• We will also have the option to make rent payments direct to the
landlord if a claimant reaches a certain level of rent arrears.
• Tier 1 and Tier 2 factors indicating potential support needs will be
• Information from a third party i.e. the claimants’ representative, their
caseworker and / or their landlord can be used to inform a decision.
• The decision about whether an alternative payment arrangement is
suitable will be made by a UC adviser.
Department for Work and Pensions
Alternative Payment Arrangements –
consideration factors
Tier One factors – Highly likely / probable need for alternative payment
• Drug / alcohol and / or other addiction problems e.g. gambling
• Learning difficulties including problems with literacy and/or numeracy
• Severe / multiple debt problems
• In Temporary and / or Supported accommodation
• Homeless
• Domestic violence / abuse
• Mental Health Condition
• Currently in rent arrears / threat of eviction / repossession
• Claimant is young either a 16/17 year old and / or a Care leaver
• Families with multiple and complex needs
Alternative Payment Arrangements –
consideration factors
Tier Two factors - Less likely / possible need for alternative
payment arrangements
• No bank account
• Third party deductions in place (e.g. for fines, utility arrears etc)
• Claimant is a Refugees / asylum seeker
• History of rent arrears
• Previously homeless and / or in supported accommodation
• Other disability (e.g. physical disability, sensory impairment etc)
• Claimant has just left prison
• Claimant has just left hospital
• Recently bereaved
• Language skills (e.g. English not spoken as the ‘first language’).
• Ex Service personnel
• NEETs - Not in Education, Employment or Training
Money advice
• Money advice will include:
– Online budgeting tools for claimants who can help themselves such as those offered by Money Advice Service and Citizens Advice.
– Advice services offered by external organisations for those who
need more support with, for example, getting a bank account or
doing a monthly budget plan.
• Advice will be delivered through online, telephone and face-to-face
channels by expert providers at a national and local level through the
Local Support Services framwork.
• A personal planner is available on gov.uk to help claimants
understand and prepare for financial changes arising from the
introduction of Universal Credit. It asks claimants a set of questions
about their readiness for claiming Universal Credit and, depending on
the answers given, sets out an individual action plan.
Department for Work and Pensions
The PBS High Level Design (Pathfinder)
Signpost to
UC claim
To quickly filter
out those who
need no support
or can self serve
PBS initial
No PBS action
Yes to any
To identify those
most likely to
need APA
PBS filter 1
UC paid
APA data
APA decision
& review set
No to all
Completing the APA
data gather
PBS filter 2
To confirm money
advice is needed
PBS provision
Refer to PBS provider
where appropriate
• APA – alternative payment arrangement
• MAS – Money Advice Service
• PBS – personal budgeting support
• UC – Universal Credit
Notify APA
Suitable Financial Products
• 75% of people are paid earnings monthly in arrears. Monthly
payment of benefit will prepare households for the reality of
budgeting on a monthly income, will ease the transition into work
• The majority of Universal Credit claimants will continue to be paid
through mainstream current or basic accounts as they are today.
• Up to 1.3 million potential UC claimants currently do not use a
transactional bank account to manage their benefit payments. Most
of these individuals currently use a Post Office Card account
(POCa) which does not offer transactional facilities.
• We are looking at ways to make accounts with budgeting
functionality, such as ‘jam jar’ accounts, more widely available. We
are consulting with financial providers across the private, social and
third sectors and considering the best ways to make these types of
products more available.
• Having access to a transactional account will enable claimants to
make electronic payments out of the account – such as Direct Debits
or standing orders – for bills such as rent, gas and electricity.
Department for Work and Pensions
Why are people ‘unbanked’?
• cash is simple and trustworthy
Many people on lower incomes prefer to use cash as it helps them to feel more in control of their money.
• legacy benefit payments haven’t necessitated a bank account
If you receive fortnightly payments and your rent is paid direct to your landlord you might not feel the
need for bank account. Most employers require you to have a bank account details but for some people
who are further from the labour market this isn’t an immediate problem.
• some people don’t like direct debits
Many people choose not to use direct debits as they prefer to have control over their payments.
They are often concerned that benefits payments might be late causing them to incur penalty charges on
failed direct debits.
• you might be concerned about penalty charges
Penalty charges can have a disproportionately punitive affect on those with lower incomes. Individuals
who do incur charges tend to be charged multiple times, averaging 5.6 times p.a.
• you might have a dormant account elsewhere
70% of POCa users have an account elsewhere. Some people choose not to have benefits paid into
their account due to outstanding debts (such as an overdraft).
• you might not have the right ID
Some banks ask for photographic ID to open an account which many people do not have.
• some banks don’t market their basic accounts
Basic bank accounts (without overdrafts or credit) are not always advertised in branch.
Department for Work and Pensions
Payments: What are the options?
Current Accounts
• Most claimants will be continue to be paid into a
bank or building society account.
• It will remain as the best option for the majority of
UC claimants as it provides access to a wide
range of financial services including budgeting
tools and SMS balance alerts.
Basic Bank Accounts
• Basic bank accounts limit the risks of
penalty charges and overdraft fees.
• All banks have signed a voluntary
agreement with the government to offer
basic accounts.
• Basic bank accounts are not profitable
so some banks do not advertise them
accounts or restrict eligibility.
• Basic accounts do not fully protect from
penalty charges or debt.
• We are working with HMT to improve
basic bank account services.
• We can make UC payments into a
• POCa is not transactional so you
can’t set up standing orders or
direct debits – you can only
withdraw cash.
• POCa contract ends in 2015 (with
an option to extend for 2 years.
• For most claimants POCa will not
be a suitable method of payment.
Credit Unions
• Credit unions are local mutual finance
• DWP have invested £38m into the expansion and
modernisation of services
• some credit unions already offer a “current
• a small number of unions provide “jam-jar” facilities
• We are working with CUEP to make sure more
credit unions can support UC claimants.
Department for Work and Pensions
Simple Payment
• Simple payment has replaced girocheque payments.
• We issued our final giro last week!
• Funds are issued onto a reusable card which can be
taken to any PayPoint outlet to exchange for cash.
• Simple payment is designed to support out most
vulnerable claimants who can’t use any other method of
• You must withdraw the entire amount on the card and you
can’t set up automated payments so it won’t be suitable
for most UC claimants.
E-money Services
• New e-money organisations are
offering alternative banking
• These include prepaid cards and
mobile phone ‘e-wallets’.
• New payment services such as
Pingit are changing the market.
• Some of these products already
offer full transactional banking
Budgeting Accounts
• Can provide additional support
through ‘jam jar’ type functionalities.
• There are already some of these
accounts on the market but they can
be expensive.
• Some credit unions are starting to
offer low cost versions.
• We are interested undertaking some
trails to consider whether DWP should
invest in these services to help our
more vulnerable claimants.
Department for Work and Pensions
Budgeting Accounts
What are these ‘jam jars’ all about????
Basic Account
Direct debits
to utilities
Standing order
to landlord
• Budgeting Accounts on the
market currently cost between
£12 and £19 pcm
• Some credit unions are
offering cheaper alternatives
ATM/debit card
• Budgeting accounts could
help some people manage
their money more effectively.
• Some landlords are working
with credit unions and meeting
the costs of these accounts to
protect their rent payments.
Department for Work and Pensions
Direct Payment Demonstration Projects
• Six local authorities and housing
associations nationwide with a total of
around 12,000 working age claimants
(representative cross section)
• Projects started in June 2012 and will now
run until December 2013 (6 month
• Applying a mix of approaches with a mix of
tenants to provide valuable learning about
what interventions best help tenants who
go into arrears – e.g. different trigger
levels, support strategies and a range of
payment methods.
What have we learnt to date on DPDP…from the data
• Projects are being externally evaluated by Centre for Regional, Economic and Social
Research (CRESR), from Sheffield Hallam University
• Latest findings from the project have shown that from 6,168 tenants placed onto
direct payment:
• Rent collection rates stood at 94% overall (current sector rate 95–96%)
• Across the areas rent collection rates varied from 91% to 97%
• 1,258 tenants have been switched back to payments to their landlords as a result
of reaching the arrears trigger point or due to early intervention
• This compares to findings over first 4 months showing rent collection rates at
92% overall with 6,220 tenants on direct payment
(http://www.dwp.gov.uk/docs/direct-payment-demo-figures-may-2013.pdf )
• Key finding: A large number of switchbacks have been due to partial payment of
rent or persistent underpayment rather then full non-payment of rent
How has Project learning influenced UC design?
• DPDP has already been instrumental in changing our thinking regarding the:
• possible level of alternative payment arrangements required:
• design of the arrears trigger;
• the need for funded budgeting support and;
• most effective ways of delivering this
• We will continue to capture learning to inform this area of the UC design during the
extension period
• We are also putting together “landlord best practice”. This will include identifying
the issues landlords should consider in preparing themselves for the introduction
for UC
• Have established a link to Local Support Services Framework and will continue to
develop this to best inform future design
• Direct Payments has also identified a number of wider issues for UC such as data
sharing, communications
Aims and Objectives of project extension
• To test and quantify the impact of the wider Welfare Reform on arrears, Budgeting
Support and cultural behaviours
• To test the optimal time and effectiveness of early interventions in the prevention of
arrears build up and switchback activity
• Develop best practice guidance for Landlords relating to the organisational and
process changes in readiness for UC
• To test and improve the ‘managed payment’ alternative payment process including
analysis of volumes and cost
• Test various types of Budgeting Support and Financial Products to understand which
best help claimants manage their money and pay their rent
• Utilise the Project Team’s position as Direct Payment subject matter experts to
share/ raise design and process learning with key stakeholders
Background and context for the LSS
• Follows Ministerial request to ensure that claimants with complex needs will
not be prevented from accessing and using welfare services (as per the
• Based on extensive research into claimant needs and services required to
meet those needs, including day visits to over 120 LAs and extensive
engagement with the Housing and Voluntary sectors.
• Written by a task force which includes LA Association reps from England,
Scotland and Wales, and co-signed by Sir Merrick Cockell
• Published on the 11th February on DWPs website – Google “UC local
support services framework”
Who do we think may require LSS services?
Claimants with mental health issues
Claimants with learning difficulties
People with literacy/numeracy difficulties
People with addiction problems (drugs/alcohol/gambling)
Homeless people
People with English language limitations
Prison leavers
Entitled 16/17 year olds
Non EEA citizens – including refugees
People with physical and/or sensory disabilities
Domestic Violence victims
People with Financial Inclusion or severe debt issues
Care leavers
Multi Agency Public Protections Agreement (MAPPA) restricted claimants
Geographically isolated people
Those under the supervision of the Troubled Families Initiative
What services will be provided – Existing
• Intermediary support
• Home visits
• Evidence verification (by LAs and RSLs as well
as DWP)
• Processing exceptions to normal payment rules
(e.g. LHA payments to landlords)
• Support around housing choices (and
homelessness prevention)
• Urgent support for resolving an issue with a
claim (e.g. DWP AJCS service)
What services will be provided – New
• Triage and Orientation
• Online Access
• Financial Inclusion and
Budgeting/debt advice
How services will be provided:
The Delivery Partnerships Approach
Under the Delivery Partnerships Approach
existing local planning forums, usually LA
led, will be developed into Local Delivery
Groups for UC local claimant support
These must include DWP and Local
Authority representatives but should also
include other service providers. They
should have the flexibility to plan support
services and engage different suppliers
according to local circumstances.
Local Delivery Groups
Landlords Homelessness
Adult Social
LA Services
(e.g. libraries)
The real purpose of the Partnerships approach is joined up “single claimant
journey” for claimants with complex needs, from benefits dependency to
independence and, where appropriate, work
Progressing the LSS Work: Governance
LSS LA Reference Group
LSS Housing &
VCS Reference Group
LSS Taskforce
(includes LA Reps.)
LSS Operations Reference Group
LSS Finance sub-group
(includes LAA and
Individual LA reps)
LSS Implementation
(includes LAA reps)
Working Group
Contingency Delivery
Working Group
LA Fin & Comm
Working Group
Implementing the LSS: DWP District Managers and LAs
have been asked to…
1) Identify appropriate planning forums already in place within
their respective local area, review membership and ensure
both DWP and LA representation.
2) Ensure that these forums can fulfil the requirements of UC
delivery groups, by making sure that they have the
capability and requisite skills to plan and arrange delivery
of local support services for UC claimants. They should
address any gaps
3) Think about who will deliver which specific support services
to claimants with a view to preparing a delivery partnership
agreement (once more is known about funding).
UC Rollout and LSS
• On the 10th July Lord Freud announced rollout to a further six sites
– Hammersmith, Rugby, Inverness, Harrogate, Bath and Shotton
• Some possibilities for the LSS from October include
– Test some of the detailed instruments that will be required to finance the LSS
and contract suppliers under the Partnerships Approach.
– Test key LSS principles and deliverables, like new MI that may be required.
– To continue to work with the Pilot LAs and other LAs who have chosen to
implement the LSS approach ahead of wider rollout.
• We are also continuing to pursue the implementation steps mentioned earlier
– Promoting closer working between DWP and LAs across GB
– Local mapping and gap analysis of services available to support UC
What is Social Justice?
Social justice is about giving individuals and families
facing multiple disadvantages the support and tools they
need to turn their lives around
Department for Work and Pensions
Social Justice Strategy: Principles
A new set of principles that inform our approach:
1. A focus on prevention and early intervention
2. Where problems do arise, a focus on recovery as the primary aim
3. Promoting work as the most sustainable route out of poverty
4. Encouraging innovation in the commissioning, funding and delivery of
5. Recognising the role of local Government, the voluntary and community
sector and grassroots delivery in offering the most targeted support
6. Empowering people and communities to take a greater responsibility for the
services they use
7. Ensuring that interventions provide a fair deal for the taxpayer
Department for Work and Pensions
• Social Investment - unlocking private and philanthropic capital to help
deliver better outcomes
• Localism - tailoring local solutions to local needs
• Early Intervention - shifting the debate from treating symptoms to tackling
root causes
• Supporting the VCS - enabling all organisations – both for-profit and notfor-profit – to play a role, irrespective of size
Department for Work and Pensions
Financial Exclusion & Social Justice
• Financial exclusion impacts social justice – people cannot access
mainstream financial products e.g. bank accounts, credit, loans, online
• Poverty Premium – higher cost for goods and services e.g. utility bills
Barrier to work:
Distractions from health-related anxiety and harassment from creditors
Cannot afford travel for interviews/training
Poor credit record can effect some job opportunities e.g. retail, finance
Disincentive to work due to impact on debt repayment plans
• Social and financial costs for communities – driver of poverty, ill health,
increases crime
Department for Work and Pensions
Over- indebtedness: What we know
• Those on low incomes are at greatest risk of problem debt
• Over-indebtedness in low income households is most often a result of inadequate
(e.g. due to insecure/low paid jobs, lack of savings) rather than excessive
consumption 2
• Those whose incomes are persistently low or fluctuating – whether in or out of work –
are likely to fall further into debt in order to meet day-to-day expenses:
– by using sources of credit with higher charges
– through lack access to mainstream credit
• Triggers of over-indebtedness: life shocks, large unexpected expenditure shocks,
onset of ill health2. Over-indebtedness can sometimes be associated with dynamics of
family functioning: financial issues can be one of the sources of strain for couple
• There is a strong link between over-indebtedness and mental ill-health2
• Sustained work is likely to be key to avoiding problems with indebtedness
• But there is also evidence that over-indebtedness can be a barrier to work4
• Evidence that problem debt can be as a result of relatively small debts spiralling
JRF (2012). Poverty: the role of institutions, behaviours and culture.
JRF (2010). Credit and debt in low-income families.
E.g. DfE (2010).Relationships Matter: Understanding the Needs of Adults (Particularly Parents) Regarding Relationship Support.
RR 233. for Work and Pensions
Manchester City Council (2010). A study of financial inclusion and worklessness in Manchester: how to improve support for people with money problems to obtain and sustain
The “poverty premium”
100 minutes + 100 texts
£10 pay monthly
£28 pay as you go
Average electricity per month
(based on 3300kWh p/a)
£64 monthly direct debit
£104 top-up card
Hotpoint washing machine
£309 online
£536 A high street “store” offering weekly payments
(£3.44 p/w)
The poverty premium means that people who don’t have a bank account or access
to reasonably priced credit end up paying more for goods and services.
Financial Inclusion - tackling Over-indebtedness
DWP is working in partnership with the Money Advice Service to provide people
with appropriate budgeting and debt advice at key points in their lives when
they may experience financial shocks.
Becoming a carer
Having a baby
Moving house
Becoming disabled
Falling ill
People who contact DWP to claim a benefit as a result of these life events will be
given information about where to go to access help with money to adjust to their
new circumstances and avoid or deal with debt.
Department for Work and Pensions
Immediate priorities
• Segmentation: we are working with Social Justice analysts to better understand how
debt affects those facing multiple disadvantage.
• Agreed cross-Government debt narrative: the cross-Government group on debt
and financial inclusion is working on a debt narrative.
• Media campaign: we are currently working with the Money Advice Service to ensure
that any cross-Government media work we undertake aligns with their
communications plans.
• Joined-up messaging at local level: this involves looking at how local Government
services (for example GPs) can signpost people to debt and money management
• Work to tackle the poverty premium: Social Justice analysts are developing a
research proposal on understanding the poverty premium.
• Undertaking work in the Social Justice team and Child Poverty Unit to raise
awareness of the role debt plays in driving disadvantage and dis-incentivising work.
Department for Work and Pensions
Debt “narrative”
• These principles underpin an approach to indebtedness which is structured around
three pillars:
1. Raising awareness
2. Debt prevention
3. Signposting to support
• The Government encourages households to be responsible for their financial
decisions. It believes that in order to make these decisions consumers must have a
choice of products and be afforded appropriate protections. People should also have
access to support to help them make budgeting and money management decisions.
• Government believes savings can help households to build financial resilience and
weather income shocks. However it also believes that people should be free to borrow
and have the tools to make an informed decision about which credit products are right
for them.
• When people find themselves in difficulty – for example being unable to service their
debts – Government provides help, advice and support.
Indebtedness – control v level of debt (1)
Extent of
Degree of Control
Key target group
Secondary Target Group
May realise they have a problem
or not
May be at early stages of having a
May be ignoring, hoping for best,
living “day to day”
May be recently affected by life
May be improving, static or
getting worse
Coping with initial shock but
without control they may be prone
to moving into a problem category
Secondary target group
Lower priority
Have realise they have a problem
and are doing something about it
May still need support to stabilise
and build up a degree of financial
Situation may be improving or
They will have low resilience for
future income “shocks”
Could be role models for others –
show what is possible
Case Studies – what was their
Indebtedness – control v level of debt (2)
Universal Credit implications
Extent of
Degree of Control
Likely to require an APA (Managed
Payment to Landlord at outset
Likely also to need the Frequency APA
as well
Will definitely need support initially
focussed on motivation, attitude and
Coping with initial shock but without
control they may be prone to moving
into a problem category
The standard monthly payment will
present additional temptation
Support will be required – attitudinal as
well as capability
Focus on increasing control and
ownership of situation
May also benefit from a budgeting
Less likely to require an APA (Managed
Payment to Landlord at outset
Should be able to manage the standard
monthly payment
Less likely also to need the Frequency
APA as well
May need some limited support to help
with transition
Support needs will be in relation to
capability, tools and products, hints
and tips
Legal High Cost Credit
Bristol University report for BIS
Cross Government action in train
OFT already progressing compliance issues
Useful recent debate in Lords
BIS-led summit with Payday lenders – 1st July
Archbishop of Canterbury’s mission
Reference of payday lending industry to the Competition
Department for Work and Pensions
Alternatives to high cost credit - Credit Unions
• Before 2006 – Limited involvement between DWP and CUs
• After 2006- Significant involvement and significant progress
• £113m of funding between 2006 and 2012
• DWP contracted with over 150 CUs to deliver financial services
including affordable credit
• 610k loans made worth over £275m, saved £245m in interest
• 40% borrowers also began to save
• 2012- Feasibility Study identified challenges and opportunities for
the CU sector
Department for Work and Pensions
DWP Credit Union Expansion Project
Following a tender exercise, a contract has been awarded to the
Association of British Credit Unions Ltd (ABCUL) to deliver the expansion
The Feasibility Study also showed that at present even the best credit
unions struggle to meet the operating costs of making small loans to
people on lower incomes.
It suggests that an increase in the interest rate that credit unions charge
from 2 per to 3 per cent would make a positive contribution towards credit
unions achieving self sufficiency and reach a wider range of customers.
HMT consultation on the increase ran until March 2013. The Government
are currently considering the responses.
Department for Work and Pensions
DWP Credit Union Expansion Project - Objectives
• Enable credit unions joining the Project to reduce
costs and become financially sustainable by
• Eliminate the need for further Government
funding of credit unions after March 2015
• Increase access to financial services to 500,000
more people on lower incomes by March 2015
• Increase access to financial services to 1 million
more people on low incomes by March 2019
• Save low income consumers £1 billion in loan
interest payments by March 2019
Department for Work and Pensions
• Welfare Reform and greater financial inclusion bring risks
as well as benefits
• We cannot empower people without taking risks
• We need to manage the risks well at macro
(organisational) and a micro (claimants) levels and move
at a pace that can be accommodated and sustained and
we are endeavouring to do that
• For this to succeed we need to work in partnership with a
wide and diverse range of organisations
• We are drawing together our work on UC and
Indebtedness to maximise the synergy that exists
• We have done a lot of engagement already but this is
only the start of what will be a very challenging journey
Department for Work and Pensions
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