Written evidence submitted by Institute
of Revenues Ratings and Valuation
RESPONSES TO ISSUES BEING EXAMINED BY THE
INQUIRY: THE IMPLICATIONS OF THE ANNOUNCED CHANGES
GENERAL COMMENTS
1. The announced changes will impact differently
upon individual authorities, upon regions and authority types,
so caution has to be exercised in making generalised comments
about the effect of the changes. It is clear however that the
changes present authorities with some significant challenges;
and a requirement to provide clear and timely information for
claimants, residents and landlords about the decisions that the
authorities will have to take.
2. This response has used as sub-headings the issues
being examined by the Inquiry. Several of the points made in the
response also apply equally well to two or more of the issues
raised by the Committee.
INCENTIVES TO
WORK AND
ACCESS TO
LOW PAID
WORK
3. The setting of the Local Housing Allowance (LHA)
rates at the 30th percentile will limit the availability of accommodation
to those on low incomes. On the assumption that these individuals
choose to take up low paid employment, it is likely that the rent
will be a lower proportion of any earned income that they derive.
This should reduce the burden on this group and make work more
profitable. However, this benefit may not be seen in the short
term.
4. It is unrealistic to expect tenants to move to
lower cost accommodation in the short term. It is there is a significant
question about there will be sufficient lower cost accommodation
available. Many landlords have used the current LHA rates by which
to set their rental charges. Over time, we may see a gradual reduction
in rental charges for this part of the market, but it will take
some time for the market to respond. Until the actual rent levels
are lower it is unlikely that there will be a significant increase
to the incentive to work.
5. Setting the level of non-dependant deductions
too high could have a detrimental effect on the incentives for
non-dependants to move into work. If the costs of employment are
perceived to be too high, it is likely that low paid employment
will not be taken up.
6. Respondent authority A cited a caseload is 4,668,
of which 513 involve non-dependant deductions are being made.
In their case they feel that the effect of an increase to non-dependant
deductions will affect a minority.
7. In respondent authority B, 138 households currently
receive deductions. The following table has been provided to the
IRRV is an estimation as to what the non-dependant deductions
may rise by, worked out on the information provided by the DWP.
This could have serious implications for their claimants; non-dependants
anecdotally often do not pay this level of "keep".
NON DEPENDANT DEDUCTIONS
| Current | Actual 2010
| Assumed 2011 | Assumed 2012
| Assumed 2013 |
| Over 25 on Income support (JSA) |
7.40 | 11.20 | 15.00
| 18.90 |
| Others not in remunerative work |
7.40 | 11.20 | 15.00
| 18.90 |
| Under £120 | 17.00
| 22.70 | 28.40 | 34.10
|
| £120-177.99 | 23.35
| 27.45 | 31.55 | 35.70
|
| £178-£230.99 | 38.20
| 44.75 | 51.50 | 58.50
|
| £231-305.99 | 43.50
| 51.20 | 58.90 | 66.60
|
| Over £306 | 47.75
| 56.25 | 64.75 | 73.05
|
Figures based on assumptions as to where the levels would have
been if not frozen, and assumptions about national average wage
rises for next three years.
8. A reduction of HB entitlement after 12 months of being unemployed
will cause hardship in many cases, especially to those with larger
families. The level of HB decrease as a percentage of their income
could be significant and could lead to financial exclusion. It
is possible that the fear of these reductions could lead to some
customers seeking work before the end of the 12 month period.
However, others may simply apply for discretionary help, or go
without essential items.
9. In respondent authority A the average Housing Benefit (HB)
is £92.93 so a 10% reduction would mean those on JSA spending
about £10 a week on rent (and many already pay their water
charges of about £2 or £3 a week). There are approximately
600 in that district on Job Seekers Allowance (JSA), which would
generate a saving of £312,000 a year on expenditure.
10. Several respondent authorities pointed out that the underlying
proposition that this proposal to reduce entitlement after 12
months will act as a spur to seek employment is based on an assumption
that employment will be available. However, regional employment
patterns indicate that this is unlikely to be the case in some
places in the current economic climate.
11. Authority C pointed out that three Registered Social Landlords
(RSLs) and its own Housing department are also concerned regarding
the reduction for those on long-term JSA; although it also pointed
out that we need to know more about this before being able to
comment fully e.g. will there be any linking rules.
LEVELS OF
RENT, INCLUDING
REGIONAL VARIATIONS
12. Within respondent D's authority there are four Broad Rental
Market Areas (BRMAs) which cross boundaries with other local authorities.
The effect of these changes will vary across each of those areas.
Indicative figures show that the maximum level of benefit available
for each property size will reduce in all areas. However, some
BRMAs will be affected more than others.
13. Authority D's most affluent market town shares it's BRMA with
a neighbouring authority. The limited evidence available suggests
that within that town there is little accommodation available
around the 30th percentile level; this accommodation tends to
be more common in the neighbouring authority. It is likely therefore
that the effect of limiting rents to the 30th percentile will
have a more significant effect on those living in the market town
than those in other areas of the BRMA.
14. Over the last 12 months Authority D has seen a reduction in
the LHA rates for some of its BRMAs. This has lead to concerns
from landlords that without additional help tenants will not be
able to cover the shortfall between their HB and their rental
liability. In some areas of authority D's region, there has been
a significant increase in the number of DHP applications received.
15. Also within respondent authority D's area, capping LHA rates
will have little effect as most rates are below the thresholds.
However, this could lead to significant differences in rents in
other parts of the country. It is possible that some groups will
be disproportionately affected by this change.
16. In Authority C, the caps will adversely affect one of their
BRMA's, which has recently been reviewed but remained unchanged.
Although rents within the area covered by the authority are relatively
high for the Borough, the averaging across this particular BRMA
means that levels of LHA are already low compared with the other
two BRMA's in the borough. Customers already living there who
need to claim HB find themselves unfairly penalised as a result
and the cap will further serve to emphasise this, making it an
area which is generally unaffordable to customers in receipt of
HB.
17. Authority B pointed out that none of the caps are lower than
their current LHA rates; however they wanted to pre-empt any assumptions
that they were paying at the cap. Therefore they aimed to be very
clear in information to tenants and landlords that their LHA limits
are lower than these caps.
18. The proposed use of the consumer Price Index (CPI) to up-rate
LHA, rather than local rents, may serve to further increase the
gap between LHA and rents. This could impact on the ability of
benefit dependent households to secure good quality accommodation.
Welsh respondent authority E pointed out that it could ultimately
lead to a decline in the size of the private rented sector in
Wales.
SHORTFALLS IN
RENT
19. Authority B stated that setting LHA at the 30th percentile
of rents in the Broad Market Area and not at the median meant
that in its area, for a three bedroom property, this is likely
to mean a drop of between £11 and £23 per week. The
following table was supplied by the Authority.
CURRENT LHA RATES AT THE 50TH PERCENTILE AND EFFECT IF
CALCULATED AT THE 30TH PERCENTILE.
| Crawley
| O/SE London
| OS London
|
| current | 30th
| current | 30th
| current | 30th
|
| Single room | 83.08 | 74.18
| 79.4 | 69.53 | 80.55
| 75.00 |
| 1 bed | 136.93 | 132.33
| 149.59 | 143.84 | 155.34
| 149.59 |
| 2 bed | 172.60 | 165.70
| 184.11 | 172.6 | 195.62
| 184.11 |
| 3 bed | 212.88 | 195.62
| 218.63 | 207.12 | 241.64
| 218.63 |
| 4 bed | 299.18 | 272.00
| 293.42 | 264 | 322.19
| 295.00 |
20. Authority B, based in South-East England, also expressed concern
that the Private Sector Landlord (PSL) contracts implemented by
London Boroughs could look to use accommodation outside London.
London landlords may be less keen to accept the LHA rates, whereas
to the landlords of lower rents in its area, these higher LHA
rates would be attractive to them. This could reduce the availability
for PSL arrangements for its own homeless team, reducing supply
for its most vulnerable people.
21. Authority B also pointed out that for many tenants in private
short hold accommodation, a reduction in benefit will be paid,
and if this does not then meet the full rent, the tenant will
have to make a contribution to the rent or will have to renegotiate
the rent with the landlord. In the current economic climate it
is possible that landlords will negotiate rents rather than lose
a tenant and have no rent as he tries to find a new tenant. This
could mean that less property is available as only the lower 30%
of the market would be available to those seeking rental support.
Currently 65% of their benefit customers receive benefit to cover
their full rent, and this was expected to fall.
22. In respondent authority E, the proposal to set Local Housing
Allowance rates at the 30th percentile of rents in each Broad
Rental Market Area, rather than the median will have a significant
effect as the difference is considerable. The authority supplied
the following table:
| LHA Rates | 1 Bedroom Shared
| 1 Bedroom self contained | 2 Bedroom
| 3 Bedroom | 4 Bedroom
|
| July 2010 | 58.27 | 103.85
| 126.35 | 138.46 | 196.15
|
| 30th Percentile | 51.92 |
93.75 | 115.38 | 126.92
| 173.08 |
| Difference | 6.35 | 10.10
| 10.97 | 11.54 | 23.07
|
23. In Authority E, the difference between the rates at the moment
is quite significant and could have an impact on homelessness
as it is likely that an increasing proportion of tenants in receipt
of LHA will build up arrears and could face eviction and homelessness.
In turn, it is suggested by the respondent, that this could mean
that some private sector landlords will be reluctant to let accommodation
to households on benefit.
Private Sector Leasing Schemes
24. Local Authorities have made reductions in the use of Bed and
Breakfast for temporary accommodation and instead many have developed
PSLs. At present HB is based on 90% of LHA plus £60 management
allowance. So if temporary accommodation comes under the 30th
percentile this is likely to have an affect on the leasing schemes
and is likely to make more PSL schemes unviable, placing pressure
on Local Government to subsidise such provision.
Social lettings agencies
25. In such an arrangement the Local Authority or other social
landlord manage property for private landlords and lets to households
in housing need at LHA rates. This arrangement provides good quality
rented homes but it is questionable whether private sector landlords
will accept reduced levels of LHA. This could lead to increased
pressure on social housing waiting lists and increase numbers
unable to access accommodation they can afford.
LEVELS OF
EVICTIONS AND
THE IMPACT
ON HOMELESSNESS
SERVICES
26. Setting the LHA levels at the 30th percentile will have an
impact on the number of evictions and demand on homelessness services.
Tenants who already have limited incomes will struggle to cover
the shortfall in their rent in the LHA rate drops. Discretionary
Housing Payment (DHP) funds are limited, and although this fund
is set to be increased, all respondent authorities are very sceptical
as to whether this will sufficiently compensate for this impact.
27. In respondent "D" area there is limited temporary/homelessness
accommodation available. It is argued that it is likely that costs
for this area of administration will increase and longer delays
will be experienced due to the lack of suitable accommodation.
However, they have not been able to complete any research to support
this assumption.
28. The increase in non-dependant deductions may result in an
increase in evictions if the benefit household does not work together
to cover the shortfall in the rent. However, as long as the level
of deductions remains at a reasonable percentage of the non-dependant's
income, it is not thought that increasing the level of deduction
will have an overly negative effect.
29. The reduction in HB after 12 months could result in an increase
in homelessness applications as some customers will struggle to
find the additional money needed to cover the shortfall in the
rent. Many customers will prioritise other areas of expenditure
above their rent and therefore fall into arrears. Some tenants
already fall into arrears as they either do not budget appropriately,
or are simply unable to afford the shortfall. This change will
simply mean that these individuals fall into arrears at a faster
pace.
30. Authority D was in agreement with the principle that the housing
benefit entitlement for those in the social rented sector should
reflect family size. However, in practice the effects of this
change may result in undesired results. There is often a lack
of suitable accommodation for tenants to move into should their
family circumstances change and there is no longer be a need for
the number of bedrooms that their current property has. Whilst
tenants could move to the private rented sector, LHA rates tend
to be higher than the equivalent rents for the social rented sector,
and this could therefore lead to an increase in HB expenditure.
More research is required around this point to establish the true
cost in financial terms of this change and to establish the likely
social trends that may occur.
31. Homelessness legislation requires Local Authorities to provide
social housing where there is a statutory homelessness duty. In
Wales this could place increasing pressure on the small pool of
social housing available. The Welsh Assembly Government has therefore
proposed that Authorities have the right to discharge their homelessness
duty by using good quality and affordable housing in the private
sector. The proposed reduction in LHA is likely to make this change
very difficult to implement.
32. The welsh Assembly Government is currently developing proposals
for intermediate rented housing to provide a more flexible housing
market, which can respond to the needs of households who are unable
to access owner occupation or social housing. The proposed model
uses a lower level of social housing grant (max 25%) and would
be let at no more than 80% of LHA. It is now questionable whether
this model of intermediate rented housing will be viable.
33. From discussions with the RSLs and the Housing Department
at respondent authority C, the issue regarding non-dependant deductions
increasing is the one issue that is currently alarming them most.
Many of the other changes do not affect them as they are to do
with LHA, but this is likely to affect the majority of tenants,
with fears that this will result in increasing rent arrears and
instances of homelessness.
LANDLORD CONFIDENCE
34. Within the south of respondent authority D's region, the rental
levels are significantly higher than that in parts of the neighbouring
authority lying within a shared BRMA. As such, landlords within
this area already lack confidence with Housing Benefit customers
because they know that the LHA rate is insufficient to cover the
rent being charged. Reducing the level of LHA further will further
damage the confidence of landlords and will make less accommodation
available. Many landlords in this area state that it is not possible
for them to lower their rental charges due to the various costs
that they have to cover. It is likely therefore that it could
take some time before landlords re-align their rents to the 30th
percentile figure.
35. It is unlikely that reducing HB after 12 months will be popular
with private landlords as shortfalls between HB and the rental
charge will increase. This may make it less likely for private
landlords to be willing to rent to benefit recipients.
36. Respondent authority C states that 70% of its private tenants
are now in receipt of LHA, and that the 30th percentile change
appears to affect the larger properties within one of its three
BRMAs. However, the overall reduction is likely to impact on an
already struggling rental guarantee scheme. Landlords have been
encouraged, by the local Landlords Association, to check the VOA
website for the maximum LHA rate and charge that. When the change
comes in the authority thinks it will therefore find fewer landlords
willing to let their properties through the rental guarantee scheme,
since that is for families who are a low priority on the housing
list as an alternative and people already in existing properties
with high rents will place an increasing burden upon the DHP fund
in order to meet the shortfall. This is a further blow to landlord
confidence which is already at a low due to the removal of customer
choice regarding payments.
COMMUNITY COHESION
37. Non-dependant deductions have not increased for the last number
of years so this could have a significant affect on rent arrears
which could lead to evictions. Also it could affect families in
as much as when non-dependant reaches an age where the deduction
is applicable they will have to leave the family home. This could
have homeless implications. Also could impact on that person finding
employment. Also this could deter people looking after elderly
relatives.
DISABLED PEOPLE,
CARERS AND
SPECIALIST HOUSING
38. Specialist accommodation for those with disabilities by its
very nature tends to be more expensive. The reduction in LHA levels
to the 30th percentile will further widen the gap between what
the Housing Benefit system is able to cover and the rent that
this group are charged.
39. The full impact of this is unknown. We have little evidence
to show whether those with disabilities are living in privately
rented accommodation or whether they are predominantly in accommodation
provided by RSL's and charities. However it is likely that the
majority of tenants in specialist housing will be renting from
an RSL or a charity and the provision from the private rented
market will be minimal. However, the impact of these changes will
still be felt by the most vulnerable.
40. The allowance of an extra bedroom for non-resident carers
will be a significant help to those who require this sort of assistance.
Whilst we do not have significant numbers of claims for those
in this position, it will reduce the financial burden on them
and will help to ensure that they are financially included.
41. The recognition regarding additional bedrooms for carers or
those with a disability is welcome but the numbers affected minimal
within my authority. Far greater are the numbers who have shared
custody of children who will still remain invisible.
OLDER PEOPLE,
LARGE FAMILIES
AND OVERCROWDING
42. Again, the reduction in LHA rates to the 30th percentile is
likely to have a negative impact on older people and larger families.
Unless there is sufficient affordable accommodation available
for larger families it is likely that over-crowding will occur
as families are forced into smaller, cheaper accommodation in
order to make ends meet.
43. Older people often have fixed incomes and therefore will struggle
to meet an increase in their rental contribution. Indicative figures
for my area show that LHA rates will drop by about £10 per
week for most property sizes. Those on passported benefits with
limited savings may struggle to cover this extra cost.
OTHER ISSUES
ARISING
The Cumulative Affect of the Changes
The concern is for those claimants who get hit by more than one
of these measures—eg someone with a five bed requirement,
with non-deps, and reliant on JSA for more than a year will get
hit with a cap of £400, increased non-dep deductions and
a 10% drop in the HB they receive after a year.
HB Restrictions From April 2013 for those living in the social
sector; specifically for working age claimants living in property
larger than their needs
Authority B's housing stock (and other authorities also) has a
scarcity of two bedroom properties and this could cause a problem
with those who are then "penalised" even if they are
willing to move. It also links with the increased non dependant
deductions, should non-dependants be asked to move out this could
then impact on the level of benefit in a negative way if the household
is then over-accommodated.
The DHP Budget
The increase in the DHP budget is welcome but surely is simply
an additional administrative matter for authorities to determine.
Instead of completing a single application form and receiving
an appropriate amount of HB, two forms will be required and with
the restriction on HB increased claims made for a DHP.
In addition, this could place an unrealistic burden on the finances
of the authority since, it is assumed, the overall maximum would
still be set at 2.5 times the DWP contribution. This being the
case, authorities would be expected to find additional resources
as failure to spend the DWP contribution and make additional sums
available is one criteria used by the current inspection regime
within the Audit Commission. Failure to spend the full DHP sums
awarded is not seen as assisting the most vulnerable customers.
6 September 2010
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