UK poverty crisis laid bare as 500,000 children living in families trapped in benefits debt cycle
More than 500,000 children live in families indebted to the Department for Work and Pensions (DWP), according to new figures revealing the extent of the benefit loan trap.
Data obtained by Citizens Advice shows more than 800,000 households on Universal Credit have had their monthly payments cut to repay loans that helped them survive the five-week wait until their first benefit arrives.
Figures released under freedom of information laws show that 13 per cent of households on Universal Credit had to take out a loan from the DWP to get by.
Analysis by Citizens Advice shows more than 500,000 children are in families repaying loans to the government, with an estimated £143 million recovered from them last year.
The charity, joined by campaigners and politicians, called on Chancellor Rachel Reeves to convert loans into grants in her upcoming budget to end the “debt trap”.
Tina, from Kent, has four weeks left to wait for UC having migrated off Employment Support Allowance (ESA). He said the experience was “terrifying”, leaving him with only £3.75 and his mental health deteriorating.
“I want to pay the bills before the debt becomes too much. I want to buy fresh food. I want to pay some money for my gas and electricity. But I can’t,” he said.
“I sit here in the evenings and think, ‘No, I’m not going to turn the lights on’. Even my phone won’t last long but I don’t even have the money to order a new cable. I’ve got £13 to plug in my electricity. How long will this last me?”
Tina, who did not want to use her surname, is now £240 in debt and relies on a social café for food and support. He is taking advice from Christians Against Poverty’s (CAP) debt coach, with the charity describing the five-week delay in the first Universal Credit payments as “devastating”.
Under current rules, claimants are offered credit by job coaches to cover five weeks until the first payment. The loan size is usually the full value of a person’s Universal Credit entitlement.
If they accept, this amount is then deducted from their monthly Universal Credit payment; This leaves many families struggling to cover the most basic living expenses with reduced payments.
Kim Johnson MP, Labor MP for Liverpool Riverside, who is campaigning to remove the two-child benefit cap, said: “Once again we see the government shifting the cost of a broken benefits system onto the families who can least afford it.
“Forcing people to take out loans just to survive the five-week wait for Universal Credit means pushing hundreds of thousands of children into poverty, pushing parents into debt and draining food banks. These loans need to be turned into grants in the Autumn Budget. Ministers can no longer ignore the human cost of this policy.”
Dame Clare Moriarty, chief executive of Citizens Advice, said: “The five-week wait for Universal Credit is forcing many families into borrowing money from the government before they’ve even received their first payment. That’s why we’re helping parents who depend on food banks. Universal Credit was about providing a safety net, not trapping people in debt from day one.”
He called on Ms Reeves to use the upcoming Autumn budget to “replace these damaging loans with grants”, adding: “No family should have to borrow just to eat while waiting for the support they are entitled to.”
Dame Rachel de Souza, children’s commissioner, said: “As families grapple with rising costs, these statistics show many are being forced to make difficult decisions to provide for their children, leaving almost a million households trapped in a relentless cycle of debt as they wait five weeks for their first Universal Credit payment.”
He called on the government to be “ambitious” in its new child poverty strategy and backed calls to scrap the two-child benefit limit.
Stewart McCulloch, chief executive of the charity Christians Against Poverty (CAP), backed the call for the loans to be converted into grants. He said: “This five-week wait is not a glitch: it is built into the system, forcing new claimants to survive more than a month without income or start taking out loans.”
The latest freedom of information data is from February 2025, but the figures remain roughly the same each month; This means they represent the current number of debtor families.
A DWP spokesman said: “Advances are not a loan and as such no interest is charged or any sanctions imposed. They are available for new and existing customers who need support urgently.
“We are reviewing Universal Credit to make sure it does the job we want it to. As part of the review we are committed to considering how we can support people through the Initial Assessment Period, often referred to as the 5-week wait, before they receive their first payment and will provide an update in due course.”
