Universal Credit loans may create ‘coronavirus debt crisis’, says Salvation Army

Advance payments for Universal Credit claimants must be given as grants, not loans, to prevent a “coronavirus debt crisis”, the Salvation Army said.

Claimants wait five weeks for a first payment after applying for the benefit but can take out an advance loan to help during this time.

But the Salvation Army said this could plunge thousands of citizens into debt, calling it a “point of critical failure that the Government must address”.

Since the Covid-19 outbreak, the Department for Work and Pensions (DWP) has seen a surge in benefits claims, with almost half a million made in just nine days in March.

Around a quarter, 70,000 out of around 270,000 Universal Credit applications in one week, applied for an advance payment.

The Work and Pensions committee wrote to the DWP on March 25 asking how many of those who applied for a payment since March 16 had received it, and the average length of time they waited.

Rebecca Keating, the Salvation Army’s director of employment plus, said: “The Universal Credit loan system could cause a coronavirus debt crisis.

“Thousands of people who never thought they would have to rely on state support are now making a Universal Credit claim.

“Many of these will be forced to take out the bridging loan which will just move their money problems five weeks down the line.

“We are particularly concerned by those working on zero hour contracts that don’t have the same legal rights of other employees.

“Many will not have a financial safety net to help avoid getting into debt straight away.”

Requiring a loan could mean people are left with having to choose between buying food or repaying the funds, the Salvation Army said.

Before the coronavirus pandemic, the organisation said it has seen an increase in people using food banks so they can put money toward paying off their loan.

Ms Keating continued: “Not only will this add stress for people already struggling with the fall-out from the pandemic, but also leave a lasting legacy if too many people are shouldering too much avoidable debt.”