More than a million universal credit payments cut over the past year because of historical overpaid tax credits

Published

2 years ago

March 23, 2023

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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.

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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Interest rate cut to 4.25% by Bank of England

Published

21 hours ago

May 8, 2025

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Interest rate cut to 4.25% by Bank of England

The Bank of England has cut interest rates from 4.5% to 4.25%, citing Donald Trump’s trade war as one of the key reasons for the reduction in borrowing costs.

In a decision taken shortly before the official confirmation of a trade deal between Britain and the United States, the Bank’s monetary policy committee (MPC) voted to reduce borrowing costs in the UK, saying the economy would be slightly weaker and inflation lower in part as a result of higher tariffs.

However, it stopped short of predicting that the trade war would trigger a recession.

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Further rate cuts are expected in the coming months, though there remains some uncertainty about how fast and how far the MPC will cut – since it was split three ways on this latest vote.

Two members of the nine-person MPC voted to reduce rates by even more today, taking them down to 4%. But another two on the committee voted not to cut them at all, leaving them instead at 4.5%.

In the event, five members voted for the quarter point cut – enough to tip the balance – with the accompanying minutes saying that while “the current impact of the global trade news should not be overstated, the news was sufficient for those members to judge that a reduction in Bank Rare was warranted.”

Even so, the Bank’s analysis suggests that while higher tariffs were likely to depress global and UK economic growth, and help push down inflation, the impact would be relatively minor, with growth only 0.3% lower and inflation only 0.2% lower.

Governor, Andrew Bailey, said: “Inflationary pressures have continued to ease, so we’ve been able to cut rates again today.

“The past few weeks have shown how unpredictable the global economy can be. That’s why we need to stick to a gradual and careful approach to further rate cuts. Ensuring low and stable inflation is our top priority.”

The Bank raised its forecast for UK economic growth this year from 0.75% to 1%, but said that was primarily because of unexpectedly strong output in the first quarter.

In fact, underlying economic growth remains weak at just 0.1% a quarter.

It said that while inflation was expected to rise further in the coming months, peaking at 3.5% in the third quarter, it would drop down thereafter, settling at just below 2% towards the end of next year.

Business

Trump set to announce US will agree trade deal with UK, Sky News understands

Published

1 day ago

May 8, 2025

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Trump set to announce US will agree trade deal with UK, Sky News understands

Donald Trump is set to announce that America will agree a trade deal with the UK, Sky News understands.

A government source has told Sky’s deputy political editor Sam Coates that initial reports about the agreement in The New York Times are correct.

Coates says he understands a “heads of terms” agreement, essentially a preliminary arrangement, has been agreed which is a “substantive” step towards a full deal.

Three sources familiar with the reported plans had earlier told the New York Times that the US president will announce on Thursday that the UK and US will agree a trade deal.

Shortly after the report emerged the value of the British pound rose by 0.4% against the US dollar.

Mr Trump had earlier teased that he would be announcing a major trade deal in the Oval Office at 10am local time (3pm UK time) on Thursday without specifying which country it had been agreed with.

Writing in a post on his Truth Social platform on Wednesday, he said the news conference announcing the deal would be held with “representatives of a big, and highly respected, country”.

He did not offer more details but said the announcement would be the “first of many”.

A White House spokesperson has declined to comment on the New York Times report.

Senior Trump officials have been engaging in a flurry of meetings with trading partners since the US president announced his “liberation day” tariffs on both the US’ geopolitical rivals and allies on 2 April.

Mr Trump imposed a 10% tariff on most countries including the UK during the announcement, along with higher “reciprocal” tariff rates for many trading partners.

However those reciprocal tariffs were later suspended for 90 days.

Britain was not among the countries hit with the higher reciprocal tariffs because it imports more from the US than it exports there.

However, the UK was still impacted by a 25% tariff on all cars and all steel and aluminium imports to the US.

A UK official said on Tuesday that the two countries had made good progress on a trade deal that would likely include lower tariff quotas on steel and cars.

Mr Trump said the same day that he and top administration officials would review potential trade deals with other countries over the next two weeks to decide which ones to accept.

Last week he said that he has “potential” trade deals with India, South Korea and Japan.

Asked on Sky News’ Breakfast programme about the UK-EU summit on 19 May and how Mr Starmer would balance relationships with the US and EU, Coates said: “I think it is politically helpful for Keir Starmer to have got the heads of terms, the kind of main points of a US-UK trade deal, nailed down before we see what we have negotiated with the EU — or, more importantly, Donald Trump sees what we have negotiated with the EU.”

Coates said there was “always a danger” that if it happened the other way around, Mr Trump would “take umbrage” at negotiations with the EU and “downgrade, alter or put us further back in the queue” when it came to a UK-US trade deal.

US and Chinese officials to discuss trade war

It comes as the US and China have been engaged in an escalating trade war since Mr Trump took office in January.

The Trump administration has raised tariffs on Chinese goods to 145% while Beijing has responded with levies of 125% in recent weeks.

US Treasury secretary Scott Bessent and US trade representative Jamieson Greer are set to meet their Chinese counterparts in Switzerland this week to discuss the trade war.

China has made the de-escalation of the tariffs a requirement for trade negotiations, which the meetings are supposed to help establish.

Business

UK-India trade deal: Is Farage right to call out ‘big tax exemption’?

Published

2 days ago

May 7, 2025

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UK-India trade deal: Is Farage right to call out 'big tax exemption'?

Britain’s trade deal with India has created a pocket of controversy on taxation.

Under the agreement, Indian workers who have been seconded to Britain temporarily will not have to pay National Insurance (NI) contributions in the UK. Instead, they will continue to pay the Indian exchequer.

The same applies to British workers in India. It avoids workers from being taxed twice for a full suite of benefits they will not receive, such as the state pension.

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Politicians of all stripes have leapt to judgement.

Nigel Farage has described it as a “big tax exemption” for Indian workers. He said it was “impossible to say how many will come,” with the Reform Party warning of “more mass immigration, more pressure on the NHS, more pressure on housing.”

But, is this deal really undercutting British workers or is it simply creating a level playing field?

Be wary of any hasty conclusions. In the absence of an impact assessment from the government, it is difficult to be precise about any of this. However, at first glance, it is unlikely that some of Reform’s worst fears will play out.

Firstly, avoiding double taxation is not the same thing as a “tax break.’ This type of agreement, known as a double contribution convention, is not new.

Britain has similar arrangements with other countries and blocs, including the US, EU, Canada and Japan.

It’s based on the principle that workers shouldn’t be paying twice for social security taxes that they will not benefit from.

Indian workers and businesses will still have to pay the equivalent tax in India, as well as sponsorship fees and the NHS surcharge.

Crucially, the deal only applies to workers being sent over by Indian companies on a temporary basis.

Those workers are on Indian payroll. It does not apply to Indian workers more generally. That means businesses in the UK can’t (and won’t) suddenly be replacing all their workers with Indians.

The conditions for a company to send over a secondee on a work visa are restrictive. It means it’s unlikely that these workers will be replacing British workers.

However, It does mean that the exchequer will not capture the extra national insurance tax from those who come over on this route.

The government has not shared its impact assessment for how many extra Indians they expect to come over on this route, how much NI they will escape, or how much this will be offset by extra income tax from those Indians. The net financial position is therefore murky.