More than a million universal credit payments cut over the past year because of historical overpaid tax credits
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.
Michelle Welch
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
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
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.”
Business
FCA considering compensation scheme over car finance scandal – raising hopes of payouts for motorists
Thousands of motorists who bought cars on finance before 2021 could be set for payouts as the Financial Conduct Authority (FCA) has said it will consult on a compensation scheme.
In a statement released on Sunday, the FCA said its review of the past use of motor finance “has shown that many firms were not complying with the law or our disclosure rules that were in force when they sold loans to consumers”.
“Where consumers have lost out, they should be appropriately compensated in an orderly, consistent and efficient way,” the statement continued.
Read more: How to tell if you’ve been mis-sold car finance
The FCA said it estimates the cost of any scheme, including compensation and administrative costs, to be no lower than £9bn – adding that a total cost of £13.5bn is “more plausible”.
It is unclear how many people could be eligible for a pay-out. The authority estimates most individuals will probably receive less than £950 in compensation.
The consultation will be published by early October and any scheme will be finalised in time for people to start receiving compensation next year.
The announcement comes after the Supreme Court ruled on a separate, but similar, case on Friday.
The court overturned a ruling that would have meant millions of motorists could have been due compensation over “secret” commission payments made to car dealers as part of finance arrangements.
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Car finance scandal explained
The FCA’s case concerns discretionary commission arrangements (DCAs) – a practice banned in 2021.
Under these arrangements, brokers and dealers increased the amount of interest they earned without telling buyers and received more commission for it. This is said to have then incentivised sellers to maximise interest rates.
In light of the Supreme Court’s judgment, any compensation scheme could also cover non-discretionary commission arrangements, the FCA has said. These arrangements are ones where the buyer’s interest rate did not impact the dealer’s commission.
This is because part of the court’s ruling “makes clear that non-disclosure of other facts relating to the commission can make the relationship [between a salesperson and buyer] unfair,” it said.
It was previously estimated that about 40% of car finance deals included DCAs while 99% involved a commission payment to a broker.
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Nikhil Rathi, chief executive of the FCA, said: “It is clear that some firms have broken the law and our rules. It’s fair for their customers to be compensated.
“We also want to ensure that the market, relied on by millions each year, can continue to work well and consumers can get a fair deal.”
Some of the world’s leading tech companies are betting big on very small innovations.
Last week, Samsung released its Galaxy Z Fold 7 which – when open – has a thickness of just 4.2mm, one of the slimmest folding phones ever to hit the market.
And Honor, a spin-off from Chinese smartphone company Huawei, will soon ship its latest foldable – the slimmest in the world. Its new Honor Magic V5 model is only 8.8mm thick when folded, and a mere 4.1mm when open.
Apple is also expected to release a foldable in the second half of next year, according to a note by analysts at JPMorgan published this week.
The race to miniaturise technology is speeding up, the ultimate prize being the next evolution in consumer devices.
Whether it be wearable devices, such as smartglasses, watches, rings or foldables – there is enormous market potential for any manufacturer that can make its products small enough.
Despite being thinner than its predecessor, Honor claims its Magic V5 also offers significant improvements to battery life, processing power, and camera capabilities.
Hope Cao, a product expert at Honor told Sky News the progress was “due largely to our silicon carbon battery technology”. These batteries are a next-generation breakthrough that offers higher energy density compared to traditional lithium-ion batteries, and are becoming more common in consumer devices.
The Magic V5. Pic: Honor
Honor also told Sky News it had used its own AI model “to precisely test and find the optimum design, which was both the slimmest, as well as, the most durable.”
However, research and development into miniaturisation goes well beyond just folding phones.
A company that’s been at the forefront of developing augmented reality (AR) glasses, Xreal, was one of the first to release a viable pair to the consumer market.
Xreal’s Ralph Jodice told Sky News “one of our biggest engineering challenges is shrinking powerful augmented reality technology into a form factor that looks and feels like everyday sunglasses”.
Xreal’s specs can display images on the lenses like something out of a sci-fi movie – allowing the wearer to connect most USB-C compatible devices such as phones, laptops and handheld consoles to an IMAX-sized screen anywhere they go.
Pic: Xreal
Experts at The Metaverse Society suggest prices of these wearable devices could be lowered by shifting the burden of computing from the headset to a mobile phone or computer, whose battery and processor would power the glasses via a cable.
However, despite the daunting challenge, companies are doubling down on research and making leaps in the area.
Social media giant Meta is also vying for dominance in the miniature market.
Ray-Ban Meta AI glasses are shown off at the annual British Educational Training and Technology conference. Pic: PA
Meta’s Ray-Ban sunglasses (to which they recently added an Oakley range), cannot project images on the lenses like the pair from Xreal – instead they can capture photos, footage and sound. When connected to a smartphone they can even use your phone’s 5G connection to ask Meta’s AI what you’re looking at, and ask how to save a particular type of houseplant for example.
Gareth Sutcliffe, a tech and media analyst at Enders Analysis, tells Sky News wearables “are a green field opportunity for Meta and Google” to capture a market of “hundreds of millions of users if these devices sell at similar rates to mobile phones”.
Li-Chen Miller, Meta’s vice president of product and wearables, recently said: “You’d be hard-pressed to find a more interesting engineering problem in the company than the one that’s at the intersection of these two dynamics, building glasses [with onboard technology] that people are comfortable wearing on their faces for extended periods of time … and willing to wear them around friends, family, and others nearby.”
Mr Sutcliffe points out that “Meta’s R&D spend on wearables looks extraordinary in the context of limited sales now, but should the category explode in popularity, it will be seen as a great strategic bet.”
Facebook founder Mark Zuckerberg’s long-term aim is to combine the abilities of both Xreal and the Ray-Bans into a fully functioning pair of smartglasses, capable of capturing content, as well as display graphics onscreen.
However, despite recently showcasing a prototype model, the company was at pains to point out that it was still far from ready for the consumer market.
This race is a marathon not a sprint – or as Sutcliffe tells Sky News “a decade-long slog” – but 17 years after the release of the first iPhone, people are beginning to wonder what will replace it – and it could well be a pair of glasses.
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