Written evidence submitted by Shelter
I. SUMMARY
- Shelter welcomes the Committee's decision to
hold an inquiry into the proposed Universal Credit. This submission
will focus on the implications of the reform on payment for housing
costs via housing benefit (HB) and to a small extent for Support
for Mortgage Interest.
- HB is a major priority for Shelter both in our
campaigning work and in our front-line services. Shelter's services
provide practical advice, support and innovative services to over
170,000 people a year, helping people with housing, debt and welfare
issues through face-to-face, online and telephone services. In
the 12 months to the end of June 2010, more than 3,200 people
contacted Shelter services in England for help with problems with
HB.
- We are supportive of many aspects of the Universal
Credit proposals, especially measures to tackle work disincentives
and to simplify the system. The employment barriers for claimants
and the excessive complexity of the system are common issues for
our clients and we are pleased that the government has recognised
this and is looking to address these problems.
- However, Shelter's major concern with the Universal
Credit is the possibility that the housing benefit element will
lose the link to housing costs in the private and social rented
sectors, with the result that shortfalls between benefits and
rents will increase, throwing more claimants into arrears and,
in the private sector and under Affordable Rent, making fewer
properties in ever smaller areas available for claimants.
- We are also keen to ensure that the new work
incentives and conditionality arrangements take into account the
fact that many HB claimants are genuinely unable to work due to
disability and caring responsibilities, and that a large proportion
are already working but on low incomes and with limited ability
to increase their earnings.
- As part of these reforms, it is important to
also tackle some of the underlying problems with the local housing
allowance (LHA), especially issues with the way Broad Rental Market
Areas (BRMAs) are drawn and the need to offer more choice to tenants
on having payments made direct to landlords.
- Shelter will also take a great interest in how
the changes are communicated to claimants and we have urged the
government to ensure that this aspect of the reforms is planned
thoroughly in advance of the changes and implemented with care.
II. EVIDENCE
Link to local housing costs
1. It is essential that in incorporating housing
benefit into the Universal Credit the link between benefits
and rents for claimants in the private rented sector is not lost.
This link is fundamental in terms of ensuring that, regardless
of any changes in rent levels, low-income households can afford
a roof over their heads. To undermine this principle would mark
a substantial retrograde step in the provision of state support
for housing and would significantly increase poverty and spatial
inequality.
2. The white paper says that support for rent
will be paid at a level "that will generally make the lowest
third of market rents affordable".[103]
However, it has also been suggested that LHA will be up-rated
in line with the Consumer Prices Index (CPI) rather than in line
with local rents. This will be the case from 2013 onwards both
for LHA as a stand-alone benefit and for the Universal Credit
as claimants migrate onto the new system. In both instances this
is potentially disastrous. Although rental costs are included
in the CPI, they account for only 5.4% of the basket of goods
used to measure price changes.[104]
Historically, this means that the CPI has not increased at
the same rate as average rents. Between 1997-98 and 2007-08,
average rents increased by 70%, but over the same period CPI increased
by only 20%.[105]
3. The linking of LHA with CPI would, over time,
severely exacerbate shortfalls between payments and rents. This
will mean that large parts of the country will become no-go
areas for people on LHA, and claimants will be concentrated
in low rent areas with fewer job opportunities. This is on top
of cuts to LHA being introduced from 2011 that researchers at
Cambridge University have said could cause 134,000 households
to be evicted or forced to move.[106]
4. It is also essential that the housing component
for claimants in the social sector also retains a link to
their actual housing costs. Currently, social tenants who are
entitled to full housing benefit can assume that the payment will
cover their entire rent. Proposed reforms to restrict housing
benefit to the claimant's appropriate property size suggest a
move away from this principle. The up-rating of Universal Credit
will also need to reflect rent rises in the social sector, which
are not necessarily restricted to CPI inflation. Failure to recognise
rent rises could leave social tenants increasingly unable to afford
their rent.
5. Support for Mortgage Interest, or any
new equivalent benefit, should also more accurately reflect actual
interest rates paid by claimants, not nominal rates that result
in over- or under-payments.
Work incentives and conditionality
6. Shelter has long argued that for many benefits
claimants, work does not pay. This is because households claiming
housing benefit and other benefits face a steep withdrawal of
benefit whenever their income increases. We welcome the fact that
the government has recognised this problem and is taking a proactive
approach to tackle it. We are in favour of the proposal to
increase the earnings disregard and we also agree with the proposals
to improve work incentives through a unified taper. The single
taper should make it easier for claimants to calculate how much
additional income they can gain from taking up employment or increased
hours. Currently these calculations often require detailed knowledge
of the complex array of tapering rules for each benefit. We would
encourage the government to make this taper as generous as possible
to ensure that it is not only simple but also effective.
7. Shelter would also be in favour of introducing
a policy of fixed period awards for claimants who are in
work for six months. This is not currently part of the government's
proposals. Payments would be fixed at the level received prior
to starting work and would not fluctuate, unless the claimant
reported a significant drop in income. If employment continues,
average wages for these first six months could be used to set
the benefit level going forward. Previous surveys of LHA claimants
by Shelter has suggested that this would make more than half of
unemployed claimants more likely to consider starting work.[107]
8. If conditionality is increased, it is important
to be sensitive to claimants who are unable to work or unable
to take on full time hours for legitimate reasons. Many benefits
claimants have work-inhibiting disabilities or significant caring
duties, and are unable to take on full time hours. Additional
benefit conditions should be flexible and not imposed on a one-size-fits-all
basis. It is also important to ensure that any penalties as a
result of conditions are aligned with the appropriate benefit
stream. Specifically, the government should not continue with
or extend the principle set out in the emergency budget that failure
to secure employment should result in cuts to housing benefit.
9. In tackling the problem of work incentives
it is important not to promote the misconception that all benefit
claimants are unemployed. In fact, 14% of HB claimants are
working households who require additional support in order to
meet their housing costs, and this rises to 26% among private
tenants on LHA.[108]
Only 12% (one in eight) of HB claimants are unemployed, the remainder
being largely made up of pensioners (one in four), disabled people,
and carers.[109]
Many people just claim HB on a temporary basis, including people
who have worked and paid their own rent all their lives and then
face a sudden loss of income, due to sickness, bereavement or
job loss and have to rely on benefits to meet their housing costs.
Direct payments
10. Vulnerable claimants are currently able to
arrange for their LHA to be paid direct to their landlord
and it is important that this remains the case under Universal
Credit. For this to change under Universal Credit would cause
great difficulties for tenants and landlords. Additionally Support
for Mortgage interest is currently paid direct to lenders and
we anticipate robust criticism if this practice was changed under
Universal Credit.
11. Shelter has also advocated for some time
that the option be available for all LHA claimants to have their
benefit paid directly to their landlord. Since direct payments
to landlords were abolished, tenants and landlord associations
alike have consistently campaigned for their reinstatement. Many
claimants have experienced cash flow problems when delays in other
benefits or unexpected costs have forced them to use rent money
to meet other essential needs. For landlords, the risk of arrears
is inevitably higher and there is evidence that this has deterred
many landlords from serving the housing benefit market. The delivery
mechanism that will be set up for the housing benefit portion
of Universal Credit could be designed from the outset to accommodate
the option of direct payments for claimants who request it.
Broad Rental Market Areas
12. BRMAs are the geographic areas that are currently
used for calculating levels of LHA. If BRMAs continue to form
the basis for calculating the housing element of the Universal
Credit for claimants in the private rented sector, they need
to be redrawn to ensure that claimants can access at least
30% of the private rented sector market in their area. There have
been ongoing problems with the way BRMAs are set, which in some
areas has led to LHA claimants being unable to afford the expected
market share of properties in their community. The use of large
BRMAs can push households away from good transport links and areas
with access to employment and childcare.[110]
This problem will become more pronounced when LHA levels are reduced
from the 50th percentile to the 30th.
13. One option would be to align BRMAs with
local authority boundaries, which would be a more recognisable
"neighbourhood" for claimants to find properties in
and would also assist local authorities in meeting their homelessness
duties and prevention strategies. Any changes made to the boundary
areas need to be made on the basis of a full impact assessment
of how these changes would affect claimants' levels of shortfalls
and their ability to access affordable housing. The Valuation
Office Agency would be best placed to do this.
Complexity
14. The benefits system is too complicated and
Shelter welcomes the government's determination to introduce
greater simplicity. Shelter's clients regularly report frustration
with the current HB system. Our research has revealed that 28%
of LHA claimants feel the current process is too complex and 27%
complained of incomplete or confusing information.[111]
We also welcome the government's decision to give responsibility
to the Department for Work and Pensions for implementing and administering
the Universal Credit, rather than this being spread between multiple
agencies.
15. We hope that the reforms will successfully
tackle delays in processing claims, as these delays can
cause considerable financial hardship and anxiety. The average
time to process a new claim, while vastly improved, is still 23
days and this can increase to an average of 59 days in the worst
performing local authorities. This is an unacceptable delay for
households operating on a tight budget. Claims are also suspended
as soon as a change in circumstance is reported. Recalculations
take an average of five days, rising to 17 days in the worst performing
local authorities, putting claimants at risk of rent arrears.[112]
Additionally we hope that plans to combine benefits into a unified
payment will include safeguards against a complete loss of income
during initial processing or recalculations.
16. It is important not to overstate the cost
of benefit fraud versus other errors. Government figures show
that overpayments due to fraud are outweighed by overpayments
due to mistakes made by officials and customers. Between April
2008 and March 2009, fraud in the HB system accounted for 1.5%
of total HB expenditure compared to 3.4% made by official error.[113]
Overpayments due to bureaucratic mistakes can leave low-income
households struggling to budget when these are recouped. It will
be particularly important to get this right once the Universal
Credit is implemented, as under this system overpayment and repayment
levels could apply across the board and therefore be much higher.
Household-wide claims
17. The introduction of the household-wide claim
for Universal Credit is potentially problematic. In order for
the household claim to work, it will depend on the lead claimant
being aware of the income and needs of all household members,
which may not always be shared. Paying all benefits to a lead
household claimant poses problems for households experiencing
domestic violence, as money could be withheld by the perpetrator.
This will be a particular issue if a lease is assigned to the
victim but Universal Credit is paid to the perpetrator, as it
is not uncommon for perpetrators to run up debts in their victim's
name.
Implementation
18. It is important that, whichever options are
chosen, the reform process is not rushed and proper impact
assessment are undertaken. The proposals within the consultation
document will affect millions of people, with official figures
amounting to 5.9 million working-age claimants, including many
vulnerable groups. We welcome the decision to introduce Universal
Credit on a staged basis, with new claimants beginning to join
the system a few months ahead of existing claimants. We would
also recommend that existing claimants are introduced very gradually
to maximise opportunities for any flaws in the system to be identified
and addressed.
19. All changes must be communicated clearly
and promptly to claimants. Standard letters must plainly set
out the expected change in the amount claimants will receive and
the way benefits will be paid, and explain which agency now has
responsibility for managing payments. Communications must be planned
far in advance to allow claimants to plan for any drop in income
and to prevent tenants signing new tenancy arrangements which
they may not be able to afford to service. It is likely that any
reforms will create considerable anxiety among claimants, so communication
materials should point people towards further sources of advice.
Shelter is happy to advise the government on the communication
strategy to ensure it meets the needs and expectations of our
service users.
December 2010
103 Universal Credit: welfare that works, DWP,
2010, paragraph 29. Back
104
Office for National Statistics, Consumer Price Indices guide Back
105
CLG Survey of English Housing 2007/08 Back
106
How will changes to Local Housing Allowance affect low-income
tenants in private rented housing?, Cambridge Centre for Housing
and Planning Research, 2010 Back
107
Shelter, For Whose Benefit?: A study monitoring the implementation
of LHA. 2009. Back
108
DWP figures, May 2010 Back
109
Survey of English Housing 2007/08. Back
110
Shelter. A Postcode Lottery?: Part 1 of a study monitoring
the implementation of Local Housing Allowance. 2009 Back
111
Shelter. A Postcode Lottery?: Part 1 of a study monitoring
the implementation of Local Housing Allowance. 2009 Back
112
Shelter/Crisis, Housing Benefits Not Barriers, October
2008 Back
113
DWP, Estimates of Fraud and Error across all benefits in 2008/09 Back
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