DWP taking cash back from benefit claimants it overpaid is ‘just like carer’s allowance scandal’

News of a benefit overpayment often begins with an alarming letter – or a sudden notification on a universal credit account. “You have been paid more universal credit than you are entitled to. This will now be taken back.”

Across the UK, around 1.1 million people owe money to the Department for Work and Pensions (DWP) due to benefit overpayments.

These overpayments are frequently the result of errors made by the DWP itself. Yet when the department identifies its mistakes, it can take “sudden and severe” action to recover the money, the Money and Mental Health Policy Institute (MMHPI) has warned.

According to the charity’s latest research, such “aggressive and punitive” debt collection tactics are driving thousands of vulnerable people into financial distress – and falling far below the standards of debt collection expected of the private sector.

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“It cannot be right that the state is lagging far behind the standards that consumer creditors have to meet in treating people fairly and with respect if they fall behind on payments,” said Helen Undy, chief executive of MMHPI, which was set up by Martin Lewis.

The charity surveyed 185 people living with mental health problems, including bipolar disorder and schizophrenia, all of whom had been subject to benefit overpayment claims. The results were stark.

“Having money deducted from my benefits has made it difficult for me to make ends meet,” one participant told MMHPI. “Some days I have been not eating because I can’t afford to, which is leaving my mental health in tatters.”

Respondents reported direct deductions of 15% from their monthly UC payment – as much as £60 a month for a single adult over 25.

How much does the DWP overpay in benefits?

Official figures show that more than than £6.4m was overpaid to universal credit claimants in the financial year ending in 2024.

Big Issue has previously reported on the human toll these devastating repayment plans can take. Last year, a single mother of three children, two of whom are disabled, was told she had to repay £17,000 after she was unknowingly overpaid the carer’s element of universal credit for three years.

In some cases, the allegations of debt weren’t even correct. A mother who spoke to Big Issue last year was falsely accused of owing the Department for Work and Pensions (DWP) more than £28,000.

The new research confirmed the human toll of brutal repayment plans. Such harsh treatment is reminiscent of the recent carers’ allowance scandal, Undy said. This saw unpaid carers prosecuted for mistakenly claiming the allowance while doing part-time work – even though many had attempted to report their earnings.

“When people are paid more in universal credit than they are entitled to, it’s often through no fault of their own, and sometimes the first they know of it is when the government takes sudden and brutal steps to claw those payments back,” said Undy.

“Many people we work with are already running out of money for food before the end of the month. Suddenly taking £60 from what they have left plunges them into further financial hardship and needless distress.”

Undy pointed out that the government is far more aggressive and far quicker than banks in recovering debt. Commercial lenders are required to obtain a court order before deducting money from someone’s income, a process that can take six to 12 months.

While it’s technically possible to call the DWP and negotiate a more manageable repayment plan, this option is poorly communicated. Even when people manage to get through – a particularly difficult task for those with mental health challenges – the DWP still takes a first payment of 15% of their monthly universal credit before putting the agreed plan into effect, even if it knows the person cannot afford it.

This research comes at a crucial time. The DWP is set to gain sweeping new powers under the Public Authorities (Fraud, Error and Recovery) Bill, currently making its way through parliament.

The legislation will allow the DWP to deduct money directly from the bank accounts of individuals no longer receiving benefits or in PAYE employment – all without needing a court order.

Undy urged the government to reconsider.

“The government has pledged to overhaul how it reclaims carers’ allowance. Now it needs to do the same for how it collects universal credit overpayments. Above all, that means proactively giving people a real chance to negotiate a payment plan that they can actually afford, instead of just taking money out of people’s income with barely any warning.”

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