Welfare Reform Bill

Memorandum submitted by the British Property Federation (WR 61)

Introduction

1. The British Property Federation is pleased to submit evidence to the Welfare Reform Public Bill Committee. The British Property Federation is the voice of property in the UK, representing companies, owning, managing and investing in property. This includes a broad range of businesses comprising commercial and residential property owners, financial institutions including pension funds, corporate landlords as well as a number of regional landlord associations.

Summary

2. We welcome plans to simplify the benefits system and improve work incentives. However we have concerns about changes planned for housing benefit and its equivalent under the Universal Credit.

3. Overall we are concerned about the general lack of detail in the Bill, with important issues left to secondary legislation therefore leaving little scope for thorough analysis and scrutiny of the Government’s plans.

4. We are especially concerned about: The lack of adequate plans to provide protection against rent arrears; and the adoption of powers to set Local Housing Allowance (LHA) without referencing local market rents, a power which the Government intends to use in order to cap LHA rate increases by the percentage change in the Consumer Price Index (CPI).

Rent Arrears Protections

5. Rent arrears continue to be a significant problem for Private Rented Sector (PRS) landlords letting to housing benefit tenants. With the reductions in LHA rates that began in April this year, the problem is likely to increase as tenants struggle to meet their rent commitments. Should Government proceed with its plans to cap LHA rate rises by the percentage change in the CPI, it is likely even more landlords will face difficulty with tenants going into arrears as LHA rates fall further.

6. Currently, protections against rent arrears offered to landlords letting to LHA tenants are insufficient. Government’s policy towards small and medium sized business is to stress the importance of prompt payment, but for small landlords, who are paid via the LHA system, it insists on them waiting until the tenant is eight weeks in arrears before the landlord can ease losses by being paid direct. We believe rent arrears protection needs to be improved by allowing landlords to request direct payment of LHA to them as soon as rent arrears occur, rather than having to wait up to eight weeks of arrears; and by giving tenants the choice to request their LHA be paid direct to landlords.

7. The Two Year Review of LHA published by the DWP in February this year confirms that rent arrears continue to be a problem and that current protections are regarded as insufficient, stating that:

a. "Many tenants, landlords and LA (local authority) and independent advice agency advisers raised concerns over the success of the safeguards in protecting tenants in vulnerable situations. Eight weeks was considered too long a period to wait to transfer payments to landlords. Generally, evidence showed a lack of awareness and difficulties in providing acceptable supporting evidence for the discretionary safeguards." [1]

8. Whilst there may be a lack of detailed statistics on the total value of rent arrears, the same DWP research indicates that there are around a million LHA tenants and that 8 per cent are seeing their landlord receive direct payment because of their arrears, which equates to around 80,000 tenants. Based on an average LHA payment in the PRS of £113 per week, arrears could total about £72 million if those landlords had to wait eight weeks before claiming payment direct to themselves.

9. The Government has recently introduced a policy of offering direct payment to landlords where they accept a reduction in rent to "affordable" levels which in the vast majority of cases will be the LHA rate which applies to the customer, and on which their maximum rent determination is based. We not only question the principle of bartering with a right to be paid for a service, but also note the likely limitations of this provision. The DWP’s 2 Year LHA research shows that in 49 per cent of LHA cases, landlords are charging in excess of the LHA rate and in 43 per cent below the LHA rate, with 8 per cent at the LHA rate. For tenants who are paying in excess of LHA rates the mean additional amount they pay is £24 per week. Thus based on these figures, landlords currently letting above the LHA rate are potentially being asked to offer a vast prompt payment discount of 21% when set against the average LHA rent in the PRS of £113 per week. Furthermore, this discount is based on figures from last year’s LHA rates, before the LHA reductions implemented from April 2011 and so the expected discounts in return for direct payment will be far more dramatic and even less likely to be feasible.

10. However Government has given a commitment that it will offer greater protection against rent arrears under Universal Credit for tenants and landlords in the Private Rented Sector (PRS) than is currently the case. [2] We welcome this pledge and believe that giving tenants choice to have their LHA, and the equivalent under Universal Credit, paid direct to landlords without conditions would be the simplest and most cost effective solution for providing such protections. This ought to be supplemented by allowing landlords to mitigate their losses as soon as their tenants go into arrears by requesting direct payment as soon as rent is not paid. Paying LHA direct to landlords would not only reduce landlord administration costs and ensure that they have adequate funds to maintain and manage their property; it would also help to keep landlords in the LHA market as the risks of rent arrears is reduced.

11. Given that Government has so far rejected unconditional tenant choice for direct payment, but has committed to improve protections against rent arrears, it must detail its alternative policies, both for before and after the introduction of Universal Credit, in order that the Bill Committee and the wider public can review and challenge where necessary.

12. In terms of Government plans for rent arrears protection and the role of direct payment under Universal Credit, a number of significant questions remain unanswered. For example:

a. Currently in the PRS 11% of claimants’ have their benefit paid direct to their landlord because they are deemed as vulnerable. How will such a subjective judgment, currently made at a local level, be made with a centralised system?

b. About 8% of claimants in the PRS don’t pay and their landlord receives direct payment. How will that operate under Universal Credit?

c. The vast majority of social rented sector tenants currently have their rent paid direct to their landlords via the housing benefit system. How will this work under Universal Credit and what are the resource implications for housing associations?

13. These are substantive areas of policy and MPs should press the Government for some detail on them before the Bill enters the House of Lords. If the Government cannot provide such detail during the Bill’s passage we think it is right that Parliamentarians should ask that such provisions are introduced by affirmative order.

Breaking the link between housing benefit and local market rents, and capping rates with reference to changes in the CPI

14. Clauses 11 and 68 of the Bill provide the Government with powers to use alternative measures for the setting of LHA rates, and subsequently the amount provided for housing provision under Universal Credit, without referencing rent officer determinations. This will mean that the current government, and future governments, will be able to set benefits intended for the provision of housing without reference to local market rates. We are concerned that such powers provide governments with too much power without scrutiny.

15. We are also concerned that in breaking the link between rates and the local market, rates for the provision of housing may be set at levels below what is required for safe and decent accommodation, meaning that claimants will either:

a. be forced to rent from rogue landlords who offer substandard accommodation by cutting corners and keeping costs low, or

b. be forced to try and use alternative incomes to meet rents, having knock on affects on poverty levels, rent arrears and evictions

16. We are particularly worried about the Government’s plans to use these powers to cap LHA rises by changes in the CPI, and setting rates on an annual basis as opposed to monthly as is currently the case. Our principal concern with this proposal is the historic disparity between changes in the CPI (which contains only 5.4% of rent costs in its calculations [3] ) and local market rents. Limiting rate changes to annually further reduces responsiveness to local market fluctuations. By restricting rises in rents by referencing the CPI it is likely there will be a steady erosion in the value of LHA as its value is outstripped by rises in local market rents, with the degree of erosion varying between local markets.

17. There have been mixed messages from Government as to exactly how it intends to implement the CPI cap on rates. The measure’s equality impact assessment states that "the measure will include a provision for the Secretary of State to periodically consider re-setting Local Housing Allowance rates without reference to rent officer determinations, if for example rates need to be adjusted to reflect local rents." [4] This suggests that Government may override LHA calculations where it feels necessary but does not give any detail as to how this decision might be made. The Government has also indicated that it may choose to adopt an alternative measure to CPI when calculating LHA rates, stating that "the Secretary of State will through secondary legislation be able to review rates and, if he considers it necessary, will be able to set rates at a different level than the increases in the Consumer Price Index." [5] Whilst we would welcome flexibility in the implementation of the CPI measure, we would like to know what criteria Government envisages using when deciding whether to modify its use of CPI.

18. The length of the proposal to use changes in the CPI as a cap is also unclear. Lord Freud stated in his evidence session to the DWP Select Committee that the measure was intended only for the period of the spending review, meaning that it would be in place from 2013 for two years. [6] However without reference to an end to this policy in statute, it would continue without an intervention by government. There has been significant inconsistency on DWP’s intentions. On the one hand stressing it is a temporary measure, but on the other hand it will be for the next government post 2015 to decide whether to continue with it. If this Government considers it a temporary measure it should have some idea of how long that temporary period need last and put a backstop date or sunset clause in the Bill, so that there is the opportunity for Parliament to decide.

19. We suggest that as a minimum the Bill should be amended to include a requirement that before a government, present or future, can implement powers to set rates which do not reference local market rents, it must set out in detail its proposed mechanism for calculating rates. Having set out its proposals it should then gain the approval of Parliament and the Social Security Advisory Committee. This is necessary to ensure that proposals can be thoroughly reviewed, debated and agreed before being implemented. Whilst we understand that some degree of flexibility in amending regulations is necessary to make minor changes, large scale reforms such as those proposed by the Government must receive adequate scrutiny and challenge.

20. We do not believe that limiting LHA rises by reference to CPI changes is an appropriate mechanism for determining LHA rates given the large disparity between market rent increases and the CPI. Whilst we welcome indications that there may be flexibility in the way in which the CPI measure is implemented, we believe that greater detail is needed as to precisely how, and on what basis, Government may adapt its plans for the measure.

May 2011


[1] Two Year Review of the Local Housing Allowance , Feb ruary 2011, DWP

[2] Lord Freud at the BPF Residential Conference, 2nd February 2011

[3] Welfare Reform Bill Briefing for Second Reading, Shelter

[4] Paragraph 5 , Uprating LHA with CPI, Equality Impact Assessment

[5] Paragraph 24 , Uprating LHA with CPI, Equality Impact Assessment

[6] http://www.publications.parliament.uk/pa/cm201011/cmselect/cmworpen/uc469-ii/469ii.htm