Welfare Reform Bill

Memorandum submitted by Runnymede Borough Council (WR 70)

Introduction

1. Runnymede Borough Council (RBC) is a district council in North West Surrey. The Council has been assessing Housing Benefit and Council Tax Benefit since their introduction in the early 1980s and has been a consistently good performer for the delivery of these benefits. During 2010/11 the Council processed new and renewal claims in an average time of just 6.73 days.

Summary

2. The Council acknowledges the need for reform of the current state benefits system which is complex and expensive to administer. However it believes that Housing Benefit should not be abolished and substituted with a Housing Credit in Universal Credit.

3. The Council is also unhappy with the proposed payment of the housing element of Universal Credit direct to tenants of social landlords, is concerned about the proposal to reduce benefits for tenants who under-occupy their homes and is apprehensive about the impact of the benefit cap on the affordability of rents in this area.

4. The Council is also uneasy at the speed at which Universal Credit is being introduced, the lack of direct consultation with local authorities, the prospect of facing increased expenditure and the extent of uncertainty that the proposal creates for staff and service users.

5. Set out below are comments on the various aspects of the Welfare Reform Bill and practical issues that will arise for many local authorities if the proposals are adopted. The comments are based on the draft Bill as originally published.

The abolition of Housing Benefit

6. The Government has acknowledged that the new relief scheme for Council Tax should be retained by local authorities at a reduced level of subsidy support. It is difficult therefore to understand why it is pressing ahead with a Housing Credit in the Universal Credit. There is a contradiction in having one benefit delivered locally while the other is delivered centrally.

7. RBC does not believe that housing costs should be included in the centralised Universal Credit for the following reasons:

· Residents are accustomed to applying for their housing and Council Tax benefits from their local councils. They associate property with local authorities, not central government. It is logical for them to apply for relief of these costs to the local council. This was the view of the Conservative Government in the early 1980s when the then Department of Social Security was unable to cope with local expenses such as rents and rates.

· Local authorities with their own housing stock have direct contact with their tenants. If a tenant has a problem with their rent, and needs to claim Housing Benefit, then officers can work together to resolve this and, by doing so, avoid evictions and expensive homelessness applications.

· The Department for Work and Pensions (DWP) will need to have rigorous controls for the confirmation of rents and tenancies to ensure that there is not widespread fraud and abuse of the system. Local authorities already have these in place.

· Claimants can call at their local council offices and apply for housing and Council Tax relief. This is important as a large number of people in receipt of benefits are vulnerable people who need help making an application. The proposed system of online applications is inappropriate for vulnerable people and takes no account of the fact that people on low incomes struggle to afford broadband/Internet connections in their homes.

· It is understood pension age claimants will have a Housing Credit within Pension Credit. Therefore Housing Credit for pensioners will be assessed separately to Universal Credit and two Government departments will need to gather and verify information with landlords on rental costs. This is all currently dealt with locally by one authority.

Payment of the housing element of Universal Credit

8. The proposal to pay the housing element of Universal Credit directly to social rented sector tenants will give rise to the following issues:

· Paying claimants Housing Credit so they can then pay their landlord will bring financial difficulties for both claimants and landlords. The social rented sector tends to house more financially vulnerable people than the private sector and many benefit recipients already struggle to meet their household bills.

· Removing direct credits to rent accounts will increase rent collection costs for local authority landlords. Rents accounts will have to be closely monitored and arrears action will have to be taken if unpaid. The administrative costs of processing rent payments via the Post Office for those previously on 100% housing benefit will add an estimated £13,000 per annum to this Council’s expenditure. The cost of recovering arrears could be even higher and entail additional staffing costs and legal expenses. This new expenditure may lead to other landlord functions, such as maintenance of buildings or dealing with breaches of tenancy, being curtailed.

· As a consequence of the Government’s Housing Revenue Account subsidy review, many local authorities with housing stock will have to take on large debts from 1st April 2012. Runnymede will be required to borrow over £100,000,000 and to pay this amount to the Government. The Council will be left with a substantial debt which will have to be repaid over a period of 30 years. The primary source of income for repayment of this debt will be the rents that tenants pay. If this income is put at risk then this Council, and other local authorities in the same position, will struggle to repay the new loan. Furthermore, there is a risk that the lenders, from whom local authorities will need to obtain their funds, will look for higher interest rates on the new loan to cover the increased risk of non payment.

· Stopping direct payment to other social landlords, (e.g. registered providers and housing associations) will have similar implications. They may also face difficulties in raising loans or see higher borrowing costs for their housing activities and also have to curtail other landlord functions to pay for the increased costs of rent collection.

· It is believed that the payment of Housing Credit directly to claimants will lead to an increase in evictions meaning that local authorities will see a rise in homelessness and increased expenditure.

· Local authorities are relying more on private sector landlords to house the homeless. Many landlords will only accept local authority referrals if they can obtain benefit direct. If private landlords stop taking homeless claimants then local authorities will have to fund the provision of other forms of temporary accommodation. This will be difficult to achieve and will require significant levels of capital funding.

9. The Committee is asked to reconsider the proposal not to pay the housing element of Universal Credit direct to landlords. If the decision is made to proceed with the current proposal, then the Government should make provision for the additional expenditure that local authorities, and social landlords, will face as a result of these changes.

Reduced benefits for tenants who under-occupy their homes

10. It is understood that reductions in benefit to households that under-occupy their homes will apply to tenants of working age and by 2012 this will be anyone under 65. The actual amount of benefit to be lost is yet to be established and will be based on a nationally determined percentage. However, it is estimated that tenants will be approximately £13 per week worse off.

11. The Government’s impact assessment anticipates that this change will affect 670,000 tenants nationally and approximately 32% of all working age Housing Benefit claimants living in social rented housing.

12. The Council welcomes the move to try and reduce under-occupation and to make better use of the social housing stock. However the Council feels that reductions in benefit should not apply where a person has no means of moving to a smaller home because alternative accommodation is unavailable. The Council also has the following concerns with the proposal:

· There will need to be very close liaison between landlords and the DWP to ensure that the current circumstances of the individual are known and the appropriate level of benefit is paid. The size of the unit will need to be verified and if a tenant has been made an offer and refused it the DWP will need to be told. This is going to require a great deal of liaison and this Council feels that this is another factor that increases the argument for Housing Benefit to be retained locally, where these issues can be quickly verified.

· There will be pressure on local authorities to provide alternative smaller units into which secure tenants can downsize. However this comes at a time when the funding for new housing is very limited and Council are finding it very difficult to enable new housing provision.

The impact of the benefit cap on rent affordability

13. The proposed total benefit caps (£26,000 for a family household and £18,200 for a single person) do not take into account the high cost of accommodation in areas like Runnymede. As a consequence, it is likely that low income families will be unable to afford many of the units available to rent in the borough.

14. RBC is aware of the research presented to the Committee by London Boroughs. These boroughs highlighted that families with children looking for property would have to supplement their rent support very significantly using basic amounts they are currently entitled to for personal support. This situation will also arise in Runnymede and other parts of Surrey where rents are as high. The table in Appendix A sets out the indicative rents for Local Housing Allowance (LHA) in the Broad Rental Market Areas (BRMA) in Runnymede. It can be seen that the assumed 30th percentile rent levels in this area are similar to many of the London areas and will therefore suffer the same issues.

15. The impact of the cap will mean that very few private sector properties will be affordable to claimants on benefit unless they use their personal allowance to subsidise their rent payments. This is a real concern for the Council as it has actively used the private rented sector to help homeless families. Indeed, 41 homeless families were housed in the private sector during 2010/2011 and if this type of accommodation is no longer available to families on benefit then the Council will be faced with having to fund other forms of temporary housing.

16. The benefit cap will also be an issue for tenants taking up the new affordable rent units proposed by the HCA and for private tenants.

17. In Runnymede, the new ‘affordable housing rents’ will be £230 per week for a 3 bedroom home (see Appendix B). If the benefit cap is applied to these units, tenants who occupy them will not be able to pay their rent without using their allowance for basic living expenses.

18. It is therefore felt that if the benefit cap is to be retained, it should be adjusted to reflect the cost of the housing in each area.

The transition of existing Housing Benefit claims to Universal Credit.

19. Under current plans local authorities will lose the administration of Housing Benefit in 2017.

20. Universal Credit is being introduced for new working age claims from October 2013 and is being phased in for existing working age claimants between October 2013 and October 2017 when the transfer to DWP will be complete.

21. The DWP will need the transfer of data for existing claims both during and at the end of the transition period. It is likely that software companies will charge local authorities for the necessary downloads/programs/interfaces and these costs will need to be met in full by central government.

22. During the transition period, existing benefit claims will have to be maintained by local authorities and staff will have to be retained. Staff numbers will be reduced over time until the last remaining cases are transferred over to the DWP and onto Universal Credit. Staff levels will need careful management to match resources to a dwindling workload. Staff numbers will inevitably need to be reduced over time until the last remaining cases are transferred over to the DWP. It may be necessary to implement re-deployment and/or redundancy over this period. However, it is also possible that local authority staff will leave during the 4 year transition period for more attractive and stable employment. Therefore, it will be difficult to maintain the service and consideration may need to be given to paying existing staff retention bonuses or to using trained and experienced agency staff. Either solution will be a potentially expensive option.

23. It is unclear if Housing Benefit staff will be TUPE transferred into the DWP to administer Universal Credit. If not, they will have to be redeployed within local authorities or be redundant. Redundancy costs and other running costs associated with the abolition of Housing Benefit should be fully funded by central government.

24. For claimants of pension age, it is understood that their claims for housing costs will be provided for as a Housing Credit within Pension Credit. Pension Credit is currently administered by the Pensions Agency (an agency of the DWP). It is not known if there is a timetable for its introduction as yet but similar issues will arise for the management of the handover of this service from local authorities as those above for Universal Credit.

25. There is a suggestion that local authorities will be involved in helping their residents apply for Universal Credit if they do not have access to the Internet. It is not known what will be required of local authorities and how much they will be involved in the processing of those applications. Whatever the involvement, an administration grant should be paid for undertaking this function on behalf of the DWP.

Changes to Council Tax Benefit

26. The Government has stated that Council Tax Benefit will be abolished and its replacement will be localised and not form part of Universal Credit. Local authorities will be given scope to operate local Council Tax relief schemes.

27. If local schemes are based on a "model" scheme imposed by the Government they will not be truly local but may be largely based on a national scheme. This would not be in line with the Government’s stated intention for Council Tax Benefit. However, a "model" scheme could allow councils to choose a robust "local" scheme and reduce implementation costs.

28. There are potential downsides to autonomously run local schemes.

· They have the potential to create a "postcode lottery" in terms of entitlement.

· There will be an increase in complexity with the potential for hundreds of authorities designing their own Council Tax Benefit policies and schemes.

· Confusion over entitlements for people moving between boroughs.

29. Under the current proposal, claimants will have to apply to the both the DWP and their local councils for assistance with their housing and Council Tax costs, respectively. If claimants have to apply to their local council for a Council Tax Benefit there seems no reason why they should not continue to apply for Housing Benefit at the same time. Local authorities will have to gather the same information with regard to income and capital to assess entitlement to the replacement for Council Tax Benefit.

30. The Spending Review provides for a 10% reduction in expenditure and localisation of Council Tax Benefit with effect from 2013/14. This is expected to yield savings of £490 million nationally. It is understood that the Government will only fund 90% of the replacement for Council Tax Benefit that is awarded from 2013/14 onwards. It is not known if local authorities will be allowed the discretion to pay for the remaining 10% from their own budgets and, of course, many authorities will not have the funds to do so. The cost of Council Tax Benefit in Runnymede in 2010/11, for example, is £4.2 million, all of which was met from Government subsidy. There is no prospect of the Council being able to afford to pay for 10% so there will have no choice but to scale back payments to recipients of the new Council Tax benefit to 90% of the underlying entitlement.

31. One option to do this would be to reduce the benefit by 10% for all claimants. However this would mean that local authorities will incur expenditure for billing households that had previously been on full benefit.

32. Councils will also have to issue summonses for small amounts to low income households who were not expected to pay previously. Those households will incur costs for non-payment which they cannot afford. Local authorities’ collection costs will inevitably increase and recovery activity could become much more difficult.

33. It is not yet known how the 90% subsidy to be paid by central government will be calculated. The Government could provide a lump sum grant, but this would leave councils with a loss or surplus dependant on the number of claims and depending on the local schemes in operation. Alternatively, the Government could require councils to calculate the benefit payable under a national scheme and then pay them 90% of that sum. However, this could - depending how many local variations there are - mean that there will be two benefit calculations to make, i.e. one for the national scheme (for subsidy purposes) and one for the local scheme.

34. It is not yet known how the new Council Tax Benefit will be paid to claimants. Ideally, it would continue to be paid as a credit to their Council Tax accounts. It would be highly undesirable for local authorities to have the benefit paid directly to claimants. This would, inevitably, push up arrears, make collection more difficult and increase staffing and ancillary costs.

35. As yet there has been no indication that an administration grant will be paid to local authorities, as it is currently. If no grant is paid, local authority costs will be pushed up. These additional costs will fall on the Council Tax payer through increased Council Tax or there will have to be reductions in the local services provided.

Fraud

36. The DWP is planning on taking take sole responsibility for the investigation and prosecution of fraud from April 2013. A Single Fraud Investigation Team (SFIT) will be created by merging the current DWP, HMRC and local authority fraud functions. This is despite local authorities’ recognised success in fraud detection, investigation and prosecution.

37. It is not known if local authorities will retain a SFIT presence in Town Halls and whether existing staff will TUPE transfer into the new team. If local authority fraud investigation staff are not TUPE transferred into SFIT they will have to be redeployed or be redundant. Full funding should be provided by central government for redundancies.

38. The SFIT may want local authorities’ historical records of investigations and sanctions. If so, this is likely to incur IT and staffing costs.

39. Inevitably, there will still be fraud in the new Council Tax Benefit scheme so there will need to be a specific power for local authorities to investigate and prosecute cases. This should be provided to allow local authorities to be effective against fraud. There should also be sufficient incentive for local authorities to investigate fraud by funding through an administration grant.

Information Technology

40. Universal Credit will be delivered by the DWP using the current HMRC "real time" PAYE computer system. It is understood that DWP is confident that it can get the new module for Universal Credit up and running in good time for the start date in 2013. This seems a very ambitious target. Developing such a significant system will be a difficult task. HMRC has had problems in the past delivering computer systems and the system will have to be in place on time and working properly for the start of Universal Credit. If it is not, then local authorities may need to continue to provide a service but will not have the staff to do so and may have to resort to employing expensive temporary staff.

41. After the transfer of all existing Housing Benefit cases, local authorities will be left with legacy benefit systems. The Government should provide an incentive for software suppliers to continue support between 2013 and 2017 for local authority systems that may disappear after 2017. It should also fund local authorities for compensating software suppliers for the balance of their contracts.

42. These would not be issues if the administration of Housing Benefit were to be retained by local authorities and if they were given access to the Universal Credit module of the HMRC PAYE system.

43. A grant should also be made available to local authorities for the development of a computer system for the administration of the replacement for Council Tax Benefit.

The Abolition of the Social Fund

44. The Bill provides for the abolition of Social Fund Community Care Grants, Budgeting Loans and Crisis Loans. It is understood that the Government’s intention is that local authorities will be given "the funding and flexibility to re-design the emergency provision for vulnerable groups according to local circumstances, in order to meet severe hardship in the way they think best".

45. The Government expects local authorities to "utilise existing delivery mechanisms and structures". There is no detail on how this will operate, or which tier of local government will undertake this duty, but local authorities are to be consulted on the design of the new system.

46. The new system will need to be funded at current levels if the current level of grants and loans is to be maintained. If not, local authorities will need to know if they will be expected to fund the balance or if will it be run in a similar way to that of Discretionary Housing Payments currently, i.e. specific amounts of money allocated per authority each year.

47. Presumably, loans given to claimants will need to be repaid. If this is the case then it seems more appropriate for this function to be retained by the DWP so that payments can be recovered direct from Universal Credit. However, if the Government decide to go ahead with the transfer of the function to local authorities then funding will need to be made available to cover the IT and staffing implications of administering the new scheme.

Other areas of concern

48. Many claimants currently receive housing and Council Tax benefits but no other state benefits. Some of these have rent rebates and Council Tax Benefit paid onto their rent accounts and Council Tax accounts. These are important sources of revenue for councils. It is not yet known how these claimants will be assessed for benefit relief.

49. Local authorities will need to be given powers to recover or write-off residual invoiced Housing Benefit overpayments after 2017 or the debts should be transferred to the DWP. Currently, other Housing Benefit overpayments are recovered by deduction from ongoing Housing Benefit entitlement. It is not known if any of these debts will transfer to the DWP or if local authorities will be expected to continue with recovery action through their debt management systems. All these legacy debts should transfer to the DWP for ongoing deduction from Universal Credit or local authorities should be provided with full funding for maintaining the administration of recovery of the debts or full funding for writing-off as bad debts.

Conclusion

50. The Welfare Reform Bill leaves many substantial factors to be determined by regulation. It is understood that these will be issued by the DWP. This means that the full impact of these provisions will not be fully understood until the Bill is passed into legislation and the regulations are produced. However, the Bill does signal the broad areas of change and it is clear that this legislation will impact very extensively on individual local authorities. It is therefore essential that the views of local authorities are taken into account during the development of the legislation and prior to the issue of any proposed DWP regulations.

51. The Welfare Reform Bill Committee is asked to consider the following specific issues:

· Housing Benefit should be retained by local authorities in order to maintain the local links with housing and local taxation, especially as that link is being retained for the replacement for Council Tax Benefit.

· Payment of Housing Credit/Housing Benefit should be paid directly to social housing landlords and, by claimant choice, to private landlords. This will avoid increased public expenditure on rent recovery and reduce the risk of increasing homelessness.

· Tenants should continue to receive a housing credit if alternative smaller accommodation is unavailable to them.

· There should be a national Council Tax Benefit/Rebate/Relief model upon which local authorities can base their local scheme to ensure a degree of consistency across the country.

· The new Council Tax Benefit/Rebate/Relief should be paid directly into claimants’ Council Tax accounts.

· To ensure there is no additional pressure on local authority budgets and to help keep future Council Tax increases low, the Government should ensure that grant/subsidy funding is provided by the DWP/DCLG/Treasury/HCA to local authorities for the following;

o Any necessary redundancy, severance and early retirement costs for local authority staff.

o Transition costs, such as retention bonuses and temporary staffing.

o Increased staffing costs resulting from the payment of the Housing Credit element of Universal Credit to tenants and the new Council Tax Benefit/Rebate/Relief to claimants.

o Administration and staffing costs for assisting in the application process for Universal Credit.

o Council Tax Benefit/Rebate/Relief subsidy and administration costs.

o If it is to be a scheme operated by local authorities on behalf of the DWP, full subsidy should be provided for the local replacement of the Social Fund and for the recovery costs/write-offs of advance payments/loans.

o All IT costs, including a new Council Tax Benefit/Rebate/Relief system, transition/transfer of data to DWP, ongoing support for local authorities’ legacy systems and contract compensation for local authorities’ software suppliers.

o Residual Housing Benefit overpayment recovery administration and write-off costs, if not transferred to the DWP.

o The additional costs of rent arrears recovery.

o Funding to provide an increased supply of smaller homes into which tenants can downsize.

o Increased funding for homelessness.


Appendix A

Indicative 30th percentile LHA rates for Runnymede

Indicative 30th percentile LHA rate per week

(March 2011)

BRMA

1 bed

2 bed

3 bed

4 bed

Walton

Parts of Elmbridge, Guildford, Mole Valley, Runnymede, Spelthorne and Woking

£155

£196

£253

£345

East Thames Valley

Parts of Runnymede, Spelthorne and Surrey Heath

£144

£178

£219

£294

Outer East London

£161

£196

£242

£290

Outer South East London

£150

£180

£213

£276

Appendix B

Proposed affordable rents (80%)

Property size

1 bed

2 bed

3 bed

4 bed

Proposed rent

£156

£175

£230

£295

May 2011