Changes to Housing Benefit announced in the June 2010 Budget - Work and Pensions Committee Contents


Written evidence submitted by Fast Trak Solutions

SUMMARY

This submission makes the following points that we hope will be of interest to the Committee's inquiry:

  1.   The Government's planned approach risks undermining the potential of the private rented sector as an alternative to social housing at a time when it is highly unlikely that it will be able to afford to build new housing.
  2.   Approached in the right manner the private rented sector provides a more appropriate balance between the security of tenure needed to hold down employment and which is afforded by social housing, and the flexibility needed to be able to respond to the need to move to a different area in pursuit of employment opportunities.
  3.   The proposed HB/LHA changes go beyond the Departmental responsibilities of the Department of Work & Pensions to impact on the work of Department of Communities & Local Government.
  4.   Planned changes to rent levels fail to address the more serious problem of BMRAs not functioning correctly, which lead to taxpayer concerns about the appropriate use of public funds.
  5.   The number of people requiring temporary accommodation because of the proposed changes will increase substantially, as they give up accommodation they can no longer afford. Councils, under statutory homelessness obligations, will be responsible for helping those people find that accommodation. This will cost the taxpayer more in the long run.

Housing support claimants renting in the private rented sector have long faced a series of entrenched problems. Even before LHA in was introduced in April 2008, social tenants faced issues with landlord stigma regarding their ability to meet rent payments. At the same time, local authorities have often been the cause of a delay in rent payments and, for any number of reasons, suspend or cease benefits payments to social tenants during the tenancy. Justifiable or not, this provides no security to private landlords that rent payments will be made regularly and on time. The result of this situation is that the majority of private landlords are simply unwilling to consider LHA claimants for tenancy agreements, leaving them no other option than to fall back on social housing, exacerbating the current crisis.

Fast Trak Solutions has developed a comprehensive solution to the issues highlighted above. FTS pre-assesses prospective tenants' LHA allowance and issues them with an Agreement in Principle, guaranteeing private landlords that the tenant will have the available funds to meet rent payments. It also includes an ongoing rent guarantee, providing landlords the assurance that rent payments will be made regardless of either a tenant defaulting on a payment or a local authority suspending the benefit and insures the landlord against the tenant causing damage to the property. This gives the reassurance necessary for landlords to grant tenancy agreements to social tenants, which will hopefully have long-term benefits in terms of removing the stigma and allowing LHA to function in the spirit intended. For the tenant, the scheme substantially reduces the large upfront costs that he or she must pay to rent in the private rented sector even via LHA (dilapidations deposit, first month's rent and administration fees). On average, these costs usually amount to some £1,500. In London, the average is approximately £2,500. The Fast Trak Scheme reduces these costs to just £499.

This work means that FTS has a wealth of firsthand experience and knowledge; not only in dealing with LHA claimants, but also with landlords, letting agents and local authorities, all of whom play a role in the operation of LHA and in finding those households a home. We are keen to use that knowledge to help better inform the policymaking process in Westminster and raise awareness of the way in which we work.

A more detailed explanation of the Fast Trak Solutions can be found in Appendix A.

RESPONSE TO THOSE AREAS RAISED BY THE COMMITTEE

Incentives to work and access to low paid work

As set out in the June Budget, the Government's objective in introducing changes to Housing Benefit (HB) is to "remove payments that trap benefit claimants in poverty instead of providing incentives to work". FTS strongly supports the need to reform welfare payments so that they do not provide a perverse incentive for long-term claimants to avoid employment opportunities. However, the Department of Work & Pensions (DWP) has clearly made reducing HB expenditure a political priority and the knock-on effect of this will be to reduce the appeal of the private sector as a means of housing low-income households at a time when the Government is simply unable to fund the building of new social housing. We would argue that with the right approach, the greater use of this sector to house people claiming welfare support is more, not less, likely to encourage a shift towards encouraging a working lifestyle and create savings for the national purse. This is because it is able to take a more balanced approach that provides tenants' with the security of tenure necessary for a working lifestyle (unlike temporary accommodation) whilst also providing them with the flexibility to follow employment opportunities (unlike social housing).

The reduction in HB payments will obviously lead to an increase in demand for social housing. Even during times of record Government expenditure, house building schemes have struggled to keep pace with this demand. In the City of Westminster, where the planned HB changes are expected to have the largest impact, the waiting time for a three bedroom property is already over seven and a half years[35]. Following the April 2011 changes, more households will look towards local councils to provide accommodation which they, along with housing associations, will not be able to supply. The end result is that those households will rely on LA provided temporary accommodation (provided under the statutory homelessness duties) whose less than stable nature invariably renders it unsuitable for finding work. At the other end of the spectrum, there are well-known concerns about the inflexible nature of traditional social housing. Tenants are understandably often unwilling to follow employment opportunities outside of their immediate location for fear of not finding a new property, because waiting lists are universally long.

HB and LHA have the potential to provide a balance between the two extremes of temporary accommodation and social housing. An appropriately funded HB/LHA welfare support policy, coupled with a landlord incentive model such as Fast Trak Solutions, has the potential to provide households with accommodation that provides the right mix of security and flexibility. Many council tenants determine their employment choices purely on the basis of the availability of social housing, rather than viewing the private rented sector as a viable option. FTS addresses this issue directly. On the one hand, tenants are provided with the security of tenure necessary for a working lifestyle but on the other, our model overcomes the barriers (chiefly cost and landlord concerns) that prevent them from moving around to find work as and when necessary. Whilst strictly speaking not the responsibility of the DWP, we believe there needs to be greater recognition from both it and the Department for Communities & Local Government (CLG) of role the private rented sector can play in this respect.

We believe that as part of its considerations, the Committee should examine the Government's planned changes within this wider context. Whilst there will be an understandable desire from the Committee to closely focus on the impact of the change from a purely Work & Pensions perspective, other organisations participating in the inquiry will, like FTS, undoubtedly stress the cross-Departmental impact of the planned changes.

Levels of rent, including regional variations

Whilst being a passionate advocate for the potential of the private rented sector to help house poor and vulnerable households, FTS also firmly respects and supports the Government's obligation to safeguard the taxpayer's interest. We support the use of HB as a means of utilising the private rented sector but believe that there needs to be a balanced approached to rental values to ensure that public funds are used appropriately. We believe that that the Government's proposed approach is not balanced in this respect as it does not take into account the wider impact that simply slashing HB/LHA payments could have on the public purse (through an increased reliance on temporary accommodation).

In seeking to address the issue of inappropriate HB payments, the DWP should instead focus on the way in which LHA payments are calculated. We believe that this would be a far more successful and targeted intervention than simply reducing the level of the rent cap or reducing the percentile used from the 50th to 30th. The Committee will obviously be aware of the Broad Market Rental Areas (BMRAs) that form the basis of rent valuations. Our experience leads us to believe that at present these Areas are simply too large and as a result there is often too greater a variation in the rental values within them. The end result is that claimants are often then able to use HB to find accommodation at disproportionate rents in to their circumstance that is an inappropriate use of public funds in the mind of both the taxpayer and Ministers, leading to the current proposal to simply reduce the level of rent paid, rather than directly addressing the flaws in the existing BMRA model that cause the rent to be set at that level in the first place. We therefore believe that the Committee should seriously consider recommending that the Government review the operation of BMRAs ahead of any re-consideration of rent levels.

Shortfalls in rent/Levels of evictions and the impact on homelessness services

It is the same flaws in the BMRA model that cause LHA rents in some areas to be disproportionately high that also cause LHA rates in other areas to be disproportionately low, causing shortfalls in rent. These shortfalls mean that those households least likely to be able to afford accommodation are unable to find housing via LHA thereby remaining dependent on the assistance of the local authority under their statutory homelessness obligations, at a greater cost for longer. We would urge the Committee to note the problems of claimants being able to fund inappropriate accommodation via LHA (as often featured in the national media) and of tenants facing a shortfall in rent as they are two sides of the same coin and are inextricably linked.

Furthermore, in those areas where rents are low as a result of the problems with the BMRA model, those people who are able to make up the difference in rent using other benefits to support the rent will face a new shortfall as a result of the proposed changes. The end result is that those households, if evicted, will also find themselves listed as "priority need" and so reliant on local authorities to help them find accommodation, all at a greater cost to the public purse than before.

Shelter research shows that some one million households are currently claiming LHA; nearly half already face a shortfall in their rent of almost £100 per month. London Councils estimate that some 18,600 households will be affected by Government's proposals, of which 14,600 are households with children. Furthermore, the Chartered Institute of Housing estimates that on average, households in three bedroom properties will face a shortfall of £475 per annum.

Whilst the detail of council's homelessness obligations do not fall within the scope of this inquiry, it is also worth noting that the cost of meeting them also does not fall within the responsibility of DWP and so will not be a factor in their policy making process. Nevertheless, the proposed changes to HB/LHA will undoubtedly impact on these obligations and therefore the additional cost will fall on the taxpayer albeit through CLG. Under these duties, they will need to find those people temporary accommodation at an increased cost to the public purse; as the Communities & Local Government Select Committee concluded in a recent report, "rents paid to secure temporary accommodation from the private sector are even higher than market rents"[36].

90% of people who use temporary accommodation do so through HB. The taxpayer will still need to fund accommodation for those households, albeit with the added premium attached to temporary accommodation; in 2009-10 the Government will distribute nearly £80 million to local authorities in homelessness grants[37] to cover the cost of finding that accommodation. This comes on top of nearly £600 million[38] spent on HB for renting temporary accommodation in England. We once again would urge the Committee to consider the wider impact of the proposed HB proposals on the public purse and the need to recommend that DWP take these broader considerations into account when considering taxpayer value for money.

Landlord confidence

When introducing LHA, the Government faced long-standing issues with private landlords' concerns of the administration of Housing Benefit in general. Both FTS's experience and National Landlords Association research has shown that the majority of landlords are reluctant to rent their property to HB claimants because of a combination of concerns about their suitability for property, the problems associated in dealing with administration of HB, concerns about non-payment of rent and the mis-alignment of rent payment cycles (like most Government payments, HB/LHA is paid in arrears rather than in advance).

DWP's decision to cap LHA payments from April 2011 will undoubtedly add to existing landlord concerns about HB/LHA tenants' ability to pay rent. The vast majority of existing tenants will face a shortfalls in rent when contracts are due for renewal and landlords are likely to seek possession rather than accept reductions in rent at a time when market rents are rising. Those that do retain tenants will face a heightened risk of tenants' failing to pay rent and the reinforcement of existing stereotypes, undermining efforts to address the stigma that many HB/LHA claimants face when seeking accommodation in the private rented sector. As a result fewer landlords in the mainstream of the sector will be willing to rent their property to HB/LHA claimants, leaving those people reliant on those "slum" landlords whose properties are less likely to be of a decent living standard.

Community cohesion

FTS strongly believes that the use of the private rented sector to house welfare claimants is the single most likely way to improve community cohesion and prevent the creation of large communities where a culture of work is simply non-existent. As such, HB and LHA are important means for creating more mixed communities and preventing the "ghettoisation" that is all to often linked to long-term welfare dependency.

If Government policy can overcome those barriers to the PRS that FTS has not only identified but that it also tackles, the private rented sector has the real potential to "regularise" LHA and housing benefit claimants by opening up new opportunities to find accommodation in the mainstream of the sector. By providing those people with the opportunity to live side by side in communities with households who simply use their private income to pay for their accommodation, they are exposed to other households on a daily basis, tackling the problem of community worklessness.

CONCLUSION

FTS hopes that this submission is helpful to the Committee's inquiry into the operation of the Local Housing Allowance. As a final note, we would urge the Committee to as far as possible take a holistic view of the impact of DWP's planned changes to HB and to consider their impact beyond any one Government department and the wider impact on the public finances, in whose name they were introduced.

FTS's work with landlords, local authorities and tenants means that we are able to rise above any sectional interest to take a broad view of how the Government's proposals will impact on those people involved in LHA. As such, we believe we have a unique contribution to make to the Committee's work and we would warmly welcome the opportunity to provide further evidence orally.

2 September 2010

APPENDIX A

TACKLING BRITAIN'S SOCIAL HOUSING CRISIS
THE FAST TRAK SOLUTIONS: HOW IT WORKS

Fast Trak Solutions provides an innovative policy solution to the country's social housing crisis by providing a streamlined Local Housing Allowance (LHA) application process that moves households off social housing waiting lists quickly and efficiently. It overcomes the barriers that many LHA claimants face in trying to find decent quality accommodation in the private rented sector, making it a viable alternative to waiting for an indeterminate period of time for local authority and housing association provided accommodation. This scheme works as follows:

  1. 1.  Prospective tenants are directed to Fast Trak Solutions through recommendation and referral from local authorities and local private property rental agencies that are part of Fast Trak Solutions's network, or direct contact.
  2. 2.  Trained staff collect individual applicants' data in order to provide a pre-assessment of the individuals or family's entitlement to LHA. Fast Trak Solutions staff advise on the relevant paperwork and information required.
  3. 3.  In addition to the pre-assessment, a tailored referencing process is undertaken to establish the applicant's credit history, including previous landlord references as well as fraud and money laundering checks.
  4. 4.  On completion of this process, if approved, the prospective tenant will receive an Agreement in Principle (AIP) document that contains information on the total rent approved.
  5. 5.  The issuing of the AIP is a guarantee to the tenant for the rent figures quoted. This rental value is, in turn, guaranteed by way of and insurance backed rent warranty that assures the private landlord of the tenants' ability to pay.
  6. 6.  An additional insurance policy can be taken out that insures the private landlord to the value of one month's rent against any dilapidations that may occur during their tenure. This avoids the tenant having to find deposit one month's rent.
  7. 7.  The tenant now armed with the agreement document, approaches landlords or the landlord's agents who recognise the scheme. The recognition of the Fast Trak Solutions allows the tenancy agreement to be drawn up as soon as the Tenant has found suitable property and no further referencing is required.
  8. 8.  The pre-assessment data and other information is then collated with the tenancy agreement and submitted to the Local Authority for priority processing.

This process can be completed rapidly, and the Fast Trak Solutions is already proving it has the ability to house social tenants in a matter of days, rather than the years they may wait on social housing lists.

The advantages of Fast Trak Solutions for…

The Tenant The tenant is at the heart of the Fast Trak Solutions. The scheme allows those tenants on housing waiting lists, with no realistic chance of receiving a tenancy before being listed as in emergency need, the opportunity to find a home quickly and efficiently. Moreover, Fast Trak complements the original spirit of LHA, by placing an emphasis on the individual to find a suitable property and to gain maximum benefit from their LHA entitlement. The Fast Trak system helps the tenant get into new property before the situation becomes an emergency and assists the tenant in an orderly and timely application for LHA.

Local Authorities Local authorities are simply inundated with social housing requests. Costs are rising sharply as the numbers increase and the ability to deal with applicants in a timely manner is being curtailed. Fast Trak speeds up the application process and helps to reduce costs, assisting the local authority both in the delivery of value for money services and in the execution of their responsibilities in this area.

Landlords In a difficult market, Fast Trak delivers a readymade and substantial source of new, credit worthy tenants to private landlords. The scheme gives assurances on the suitability of potential tenants and provides the guarantee that rent payments will be made in full, providing the financial security necessary to incentivise attitude change amongst private landlords to accepting social tenants.

Letting Agents In the current market conditions, many property agents are surviving on their letting business. Fast Trak provides letting agents with increased market opportunity within his area that will enhance existing businesses.


35   http://www.westminster.gov.uk/services/housing/housingoptions/supplyanddemand/  Back

36   Pt 291, p 93, House of Commons Communities & Local Government Select Committee, Eighth Report of Session 2007-08, The Supply of Rented Housing. Back

37   Answer to Written Parliamentary Question, Hansard, 20 July 2010, Column 217W, Homelessness. Back

38   Written evidence to the House of Commons Communities & Local Government Select Committee, Eighth Report of Session 2007-08, Written Evidence-Volume II, Memorandum by the Department for Work and PensionsBack


 
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