Welfare Reform Bill

Memorandum submitted by the Scottish Federation of Housing Associations (WR 25)

1 Executive Summary

1.1 SFHA agrees with the UK Government that the existing welfare system is too complex and in need of radical reform. The concept of a unified benefit is worthy of exploration. But we have grave concerns about specific proposals, the current pace of the welfare reform agenda and its linkage with addressing the deficit.

1.2 We are concerned that the combined impact of all of the current welfare reform plans, will have a detrimental impact on

- the lives of low income households;

- the operational costs, revenue streams, borrowing capacity and, ultimately, viability of social landlords.

1.3 A principal concern of SFHA is to support our members in seeking to prevent and alleviate homelessness. We consider it a priority to examine any proposed changes to the welfare system that could undermine our members’ work to ensure that even the most vulnerable tenants can sustain their tenancies.

1.4 SFHA considers it vital that any reforms must take account of the interaction between devolved and reserved powers. Changes and restrictions to Housing Benefit and the treatment of the housing costs element of Universal Benefit could potentially impact negatively on demand for housing, levels of indebtedness, and homelessness. All of this has implications for matters of housing policy devolved to the Scottish Parliament.

1.5 The UK Government’s welfare reform agenda is focused upon reducing welfare dependency. It is our view that insufficient account is being taken of prevailing economic conditions and other factors that affect ability to work.

1.6 SFHA has outlined in this submission a number of our detailed concerns about the Welfare Reform Bill. The most significant of these concerns for our members are:

· that a mechanism for direct payment of housing costs to social landlords must continue within the proposed Universal Credit;

· that the penalty proposed for those deemed to be living in a house larger than they require is unduly punitive and does not take account of stock availability and other relevant factors;

· that the housing costs element must continue to be based on the actual rents charged for housing association properties.

· that the wording of clause 68 in the Bill gives the Secretary of State too wide a power to introduce major restructuring of the benefits system without detailed parliamentary scrutiny. Much of the detail will not appear until later secondary legislation is drafted.

2 Who We Are

2.1 The SFHA is the national representative body for housing associations and co-operatives in Scotland.

2.2 Housing associations and housing co-operatives in Scotland own and manage 47% of the country’s affordable rented housing stock. This represents around 279,144 homes across Scotland, concentrated in some of the poorest communities in our country. Approximately 60% of social housing tenants in Scotland rely on full or partial Housing Benefit in order to pay their rent. [1]

2.3 This submission focuses upon those aspects of the Bill that will have the most significant impact upon the work of our members and upon the communities within which they operate.

3 General Comment on the Welfare Reform Bill

3.1 SFHA agrees that the existing welfare benefits system is in need of reform. A unified benefit such as Universal Credit has the potential to streamline the system.

3.2 However, we are concerned that much of the detail of the new framework for welfare is not in the Bill, but will be dealt with in secondary legislation. This means that the detail will be subject to much less scrutiny in Parliament.

3.3 Figures supplied to SFHA by the Scottish Housing Regulator show that 60% of housing association tenants are in receipt of Housing Benefit and on average 55% [2] of Scottish housing associations’ income is derived from Housing Benefit.

3.4 The Welfare Reform Bill will have the effect of dismantling the existing safety net for households whose income is threatened by unemployment, low wages or disability. This has the potential to have a significant impact upon the income streams of housing associations and housing co-operatives. The efficacy of the replacement framework is impossible to judge in the absence of the detail that will come in secondary legislation, hence our concern about the pace of the emerging reform agenda.

3.5 The SFHA agrees with earlier comments made by the Social Security Advisory Committee (SSAC) that:

"Rapid cuts made in order to reduce expenditure could further distort the system and make wholesale rational reform of the welfare system even harder in the longer term. The speed with which some of the changes are being designed and implemented also leaves very little time for the consideration of a holistic view of the social welfare agenda, which for example needs to take account of the impact on housing policy, child outcomes and poverty levels." [3]

3.6 SFHA has given its support to the Scottish Campaign on Welfare Reform’s Manifesto for Change [4] . SFHA agrees that: "the successive introduction of new benefits with even more conditions attached has resulted in a system so complex people often don’t know what they are entitled to and are frequently plunged into financial crisis every time their circumstances change. The system is expensive to administer and badly underfunded leaving staff facing impossible demands. It is time to stop tinkering with the system and make some fundamental changes." [5]

3.7 A recent report on poverty and social exclusion in Scotland states that, although Scotland entered the recession with lower unemployment and child poverty than in England, it has fared worse since. [6] We are also concerned that the proposals may impact upon the operational costs and revenue streams of social landlords, at a time when they are focused upon keeping costs down in order to maintain affordable rents. Increases in costs must be met by increases in rents, which in turn push up the Housing Benefit bill. [7]

3.8 We have examined the Bill and we believe that the combined impact of all of the current welfare reform plans will have a detrimental impact on the lives of low income households, particularly if unemployment remains high.

4 Benefit Dependency

4.1 The Social Security Advisory Committee’s response to 21st Century Welfare expressed concern about the language used by the UK Government in referring to "welfare dependency", implying that it is a "lifestyle choice". The SSAC has emphasised that "dependency" implies the unnecessary or inappropriate receipt of benefit. "We know of no reliable evidence to suggest that benefit receipt is a matter of "choice" for the overwhelming majority of benefit recipients." [8]

4.2 The welfare reform debate to date has made much mention of the issue of intergenerational worklessness. Scottish housing associations and co-operatives are not in favour of the continuation of intergenerational worklessness. Indeed, much of the wider role work that they undertake creates training and employment opportunities for local people.

4.3 This leads us to question whether the key driver for welfare simplification is, quite simply, to save public expenditure, rather than it being creating a system that is fit for purpose and fit for the 21st Century.

4.4 As indicated above, the SFHA is a co-signatory to the Scottish Campaign on Welfare Reform’s (SCoWR) Manifesto for Change. [9] It is SFHA’s view that the key demands outlined in the SCoWR Manifesto form a robust set of principles for a welfare system that is fit for the 21st Century. It is also our view that this must be accompanied by a significant public investment programme, including investment in housing. We consider that now is not the time to cut spending on welfare, but rather to invest our way into economic recovery.

5 Detailed Comment on the Bill

The Welfare Reform Bill contains several provisions that will have a detrimental impact on tenants and ultimately housing associations.

Restrictions on Housing Benefit Payments to Working Age Social Tenants According to Size of Property

5.1 Tenants who occupy a larger property than it is deemed they require will have their Housing Benefit restricted – in an attempt to encourage them to move to a smaller property.  This will potentially impact on 110,000 households according to the Scottish Government’s impact assessment. [10]   This will limit the ability of tenants to pay their rent and will have a significant impact upon tenants where their family has grown up and moved away. A real life example of this situation is appended to this evidence. Households will be faced with either finding the money to make up the shortfall from already tight resources, or trying to find smaller suitable accommodation that is available for rent.

5.2 This aspect of reform, which is being introduced through clause 68 of the Bill, is neither reasonable nor practicable. It has the potential not only to create significant administrative burdens for landlords, but also to lead to spiralling rent arrears and ultimately homelessness, which the Scottish Government and housing providers are committed to reducing.

5.3 Scottish housing associations and co-operatives already seek to make the best use of their housing stock and meet housing needs effectively through their allocation policies and/or Common Housing Registers. We have evidence from an association operating in a rural area that, because vacancies in their area of operation are so scarce, that they typically offer properties larger than household size to accommodate changing circumstances of the household. These can include that addition of children through birth or new relationships, the inclusion of older family members no longer able to live independently, the need to have space to work at home. We also have evidence from other associations typically working in regeneration areas, who let larger than required properties to those presenting as homeless because housing of a suitable size is in short supply and because larger sizes are available and in low demand.

5.4 SFHA is of the view that the issue of ‘under occupation’ may have been overstated. We would suggest that some robust research needs to be carried out to establish the scale of the ‘problem’ and the profile of the existing stock in Scotland.

We urge the Bill Committee to recommend that this measure is withdrawn from the Bill.

Direct Payment of Housing Costs to Social Landlords

5.5 The Bill is silent about the arrangements for paying the housing costs element of Universal Credit. However, the Universal Credit White Paper published last November stated that the intention is to pay the new Credit, including the housing costs element, directly to the tenant. It also stated

"We ….recognise the importance of stable rental income for social landlords to support the delivery of new homes and will develop Universal Credit in a way that protects their financial position. Options for achieving this could include some ongoing use of direct payments to landlords, use of direct debits, and a protection mechanism which safeguards landlords’ income." [11]

5.6 Currently, there is a facility for Housing Benefit to be paid directly to the landlord where the tenant agrees or where there are significant rent arrears. SFHA urges the Government to ensure that this facility is preserved in the future arrangements for Universal Credit. If it is not, the income streams of social landlords risk being significantly reduced. Tenants on low incomes may spend the money received on items other than rent. If they do, reduced rental income will severely constrain social landlords’ abilities to repay the private finance borrowed to build houses and to fund the maintenance of existing houses. This could result in lenders viewing housing associations and co-operatives as higher risk, thus impacting on the availability and terms of private finance in the future.

5.7 The direct debit scheme does not ensure that payments due are actually paid. If the tenant does not leave sufficient money in the bank account to cover the payment, they incur a

significant banking charge (sometimes two if the payee makes a repeat request for the payment, which is standard practice). Consequently, there is real potential for those who are already in tight financial circumstances adding to their existing debt, including rent arrears. Many will have no option but to resort to expensive doorstep lenders or even local loan sharks. Indeed, there is evidence that housing association tenants are particularly vulnerable to being excluded from mainstream financial services, including bank accounts [12] .

We urge the Bill Committee to recommend that the arrangements for Universal Credit must continue to allow tenants to choose to have housing costs paid direct to landlords.

Relationship between Housing Costs Subsidy and Actual Rents

5.8 SFHA is concerned that the wording of clause 68 in the Bill gives the Secretary of State too wide a power to introduce major restructuring of the benefits system without detailed parliamentary scrutiny. For example, clause 68 in the Bill could be used to introduce a standard housing allowance for social tenants, with fixed rate payments. We note that, in the Explanatory Notes accompanying the Bill, it states:

"In the short to medium term, housing benefit for social rented sector tenants….will continue to be based on the actual rents in both housing association and local authority properties" (subject to the new size criteria mentioned in the same section of the Notes) [13]

5.9 Whilst it is welcome that assistance with housing costs will continue to be based on actual rents, the use of the phrase "in the short to medium term" above rings alarm bells. We would be concerned if the concept of a fixed rate housing element appeared in the Universal Credit regulations when they are published.

5.10 The relationship between the amount of housing costs paid to a benefit claimant and the actual rent is an important one. Housing Benefit and its predecessors have been developed to ensure that any tenant, irrespective of their experience of threats to income, can continue to make rent payments in full. For social landlords, a stable rental income is critical to ensuring that they can continue to access competitive borrowing to assist with building much needed new affordable homes and to maintain existing stock and services to tenants. Any change to this direct relationship between housing costs paid and actual rent has the potential to create spiralling rent arrears, increased homelessness and threaten the viability of social landlords.

5.11 SFHA agrees with Professor Kenneth Gibb, that "if the long term goal is to move to a much simpler universal type allowance with an embedded housing allowance within it…..then the shift from one system to the new one has to be managed and the transition made acceptable to all parties………Housing Benefit on this scale directly affects the poorest in society but also the very bodies whose purpose is to provide aid and support to those people. It the outcome of reform is to make private finance even less accessible [for housing investment] it will be self defeating." [14]

We urge the Bill Committee to recommend deletion of clause 68 from the Bill.

Sanctions and Benefit Withdrawal

5.12 The Bill brings in a tough new regime of sanctions for claimants, including withdrawal of benefit. We believe that there is a need for the Bill to protect payments for housing costs from the risk of sanction so that people are not faced with losing their home. If this is not done then we may see greatly increased levels of homelessness and family breakdown.

We urge the Bill Committee to recommend that help with housing costs is protected from the risk of sanction and withdrawal. .

Overall Household Benefit Cap

5.13 The Bill includes a provision for the Secretary of State to introduce an overall cap to the amount of benefit that a household can receive. It is our understanding that it is the housing costs element that will be reduced once the relevant cap is reached. This will create shortfalls in the amount of benefit that a claimant has available to pay the actual rent and other household bills. We have emphasised above the importance of retaining the direct relationship between housing costs paid to claimants and their actual rent. Any shortfalls have the potential to increase rent arrears and household debts, increase homelessness and threaten the stability of social landlords’ revenue income.

We urge the Bill Committee to recommend that the Household Cap proposal is dropped.

Application and Reporting of Changes

5.14 In the Universal Credit White Paper, it was proposed all applications for benefit will have to be made online, as would reporting of changes of circumstances. [15] The Bill is silent on this matter and it is our understanding that this will be addressed in secondary legislation. This proposal takes no account of those tenants who do not have internet access, or those with

literacy problems or learning difficulties. We recognise that online claiming is being proposed to make the process easier. While it may make administration simpler, it risks adding an extra barrier to legitimate claims from a significant number of tenants.

We urge the Bill Committee to recommend that there are alternative methods of claiming Universal Credit, in addition to online application.

Social Fund Abolition

5.15 The Bill contains a provision to change the current UK-wide arrangements for payments of crisis loans, community care grants and budgeting loans from the discretionary Social Fund. In Scotland, it will be the Scottish Government who will decide upon the most appropriate arrangements for such assistance. Whilst we support the devolution of any powers that will assist with creating joined up housing and social policy in Scotland, this proposal has come with no warning and in the absence of discussions with the relevant parties.

5.16 These forms of assistance are vital for many people taking on a tenancy for the first time or moving from institutions back into the community. They do not have any possessions and rely on community care grants to fund the purchase of basic items such as beds, cookers etc. Families under exceptional pressure also rely on the Fund to help with removal costs.

5.17 SFHA is concerned that the existing arrangements are ceasing without any discussions in advance with housing providers and other relevant agencies about replacement mechanisms. We are concerned that the Scottish Government/ Scottish local authorities may be faced with having to provide a scheme of assistance with a potentially reduced budget for both administering and providing the scheme within an already constrained Scottish Budget. This has the potential to undermine the existing good practice of Scottish housing associations and co-operatives in helping vulnerable tenants to sustain their tenancies. [16] It also has the potential to further increase tenant indebtedness and could create a ‘post code lottery’ for the assistance.

We urge the Bill Committee to recommend that the abolition of the Social Fund is dropped from the Bill and that the UK Government consults fully with the devolved administrations on replacement arrangements.

6 Delivery of a Reformed System

6.1 The SFHA considers it vital that any reforms must take account of the interaction between devolved and reserved powers. Social Security legislation is reserved to Westminster but any changes will affect the residents of GB, including Scotland. Changes and restrictions to Housing Benefit could potentially impact on demand for housing and levels of indebtedness, and potentially increase homelessness. A number of the changes proposed to welfare benefits, including the Universal Credit proposal, have the potential to exacerbate this. All of this has implications for matters devolved to the Scottish Parliament.

6.2 For example, the Scottish Government has been committed to dealing with homelessness since 2005, when a ministerial statement was issued stating the aim of "abolishing priority need by 2012". The changes being proposed to the welfare system have the potential to cut across this policy aspiration by making it difficult for low income households to sustain their tenancies. The Scottish Government may also have to factor in an increase in spending on services such as Housing, Social Work and Advice Services as a consequence of these changes; all at a time when the income they receive from Central Government is being reduced.

6.3 The Scottish Government is liaising closely with stakeholders, including the SFHA, about the potential impact of the proposed changes to Housing Benefit, the treatment of the housing costs element of Universal Credit and other aspects of the welfare reform proposals. An interim impact assessment [17] has already been produced in consultation with stakeholders and further analysis is underway.

7 Concluding Comments

7.1 SFHA is submitting this evidence in advance of the oral evidence being given to the Bill Committee on Thursday 24th March 2011 by one of our sister Federations, the National Housing Federation (NHF), which represents the interests of housing associations in England. We support the written evidence already submitted by the NHF.

7.2 We will wish to submit supplementary evidence later in the Committee scrutiny stage, when some further supporting data on the potential impact on Scottish housing associations and co-operatives will be available.

7.3 We would welcome the opportunity to give oral evidence on the Scottish dimension for welfare reform.

Example of Impact

Here is an illustration of how the proposals could impact on people’s day to day lives. This example was provided to us by one of our members in Glasgow:

· A woman was allocated a 4 bedroom home due to family size.

· The children have now grown up, with two moving out. 

· This leaves one adult son, who is a non-dependant.  The woman will incur £9.40 deduction from her Housing Benefit as a result

· As two bedrooms are now unoccupied, the woman will incur an overcrowding penalty of around £19.50 per week on her Housing Benefit.  

· Her overall income is £67.80 per week through Job Seekers Allowance. 

· She has in place existing repayment plans on top of this, which combined with the above leave her £25 per week to live on.  

· As a result, she is spending 62% of her income on housing costs.

March 2011

[1] Scottish Housing Regulator, “Registered Social Landlords in Scotland Summary Facts and Figures 2008/09, http://www.scottishhousingregulator.gov.uk/stellent/groups/public/documents/webpages/shr_registeredsociallandlordsi.pdf , page 2.

[2] The actual figures show that HA income derived from Housing Benefit ranges from 40% to 75%.

[3] SSAC Response to 21 st Century Welfare , paragraph 1.5

[4] Downloadable from the Poverty Alliance’s website at www.povertyalliance.org.uk

[5] Extract from the introduction to the SCoWR Manifesto for Change

[6] Monitoring Poverty and Social Exclusion in Scotland 2010 , Joseph Rowntree Foundation, September 2010

[7] A copy of our campaign leaflet can be downloaded via this link: http://www.sfha.co.uk/component/option,com_docman/Itemid,37/gid,417/task,doc_download/

[8] SSAC response to 21 st Century Welfare , paragraph 1.4

[9] Downloadable from the Poverty Alliance’s website at www.povertyalliance.org.uk

[10] Housing Benefit Changes: Scottish Impact Assessment, Scottish Government, January 20 1,downloadable at http://www.scotland.gov.uk/Resource/Doc/1125/0110252.doc

[11] Universal Credit: welfare that works , DWP November 2010 , page 20, paragraph 31

[12] Financial Inclusion in the UK: Review of Policy and Practice , Lavinia Mitton for Joseph Rowntree Foundation, July 2008, downloadable at http://www.jrf.org.uk/sites/files/jrf/2222-financial-exclusion-policy.pdf

[13] Explanatory Notes , p. 46, section 325

[14] Professor Kenneth Gibb, Joseph Rowntree Foundation’s response to 21 st Century Welfare, pp30-31

[15] Universal Credit: welfare that works, DWP November 2010 , page 33, paragraph 5


[16] Preventing and Alleviating Homelessness , SFHA Good Practice Guidance, September 2010

[17] Housing Benefit Changes: Scottish Impact Assessment, Scottish Government, January 20 1,downloadable at http://www.scotland.gov.uk/Resource/Doc/1125/0110252.doc