Communities and Local Government CommitteeWritten evidence from the National Housing Federation

The National Housing Federation is the voice of affordable housing in England. We believe that everyone should have the home they need at a price they can afford. That’s why we represent the work of housing associations and campaign for better housing.

Our members provide two and a half million homes for more than five million people. And each year they invest in a diverse range of neighbourhood projects that help create strong, vibrant communities.

The Federation welcomes the opportunity to respond to the Communities and Local Government Committee’s inquiry into the implementation of welfare reform by local authorities.

1. Summary of Recommendations

1.1 The National Housing Federation supports many of the principles behind the introduction of Universal Credit. However we are concerned about the risks the implementation of the new system poses to tenants and housing associations. Time is running out to provide the clarity needed on how safeguards will operate to protect vulnerable claimants. The successful implementation of Universal Credit will require:

1.2 An efficient “switch-back” mechanism to ensure rent is paid direct to the landlord if a tenant builds up eight weeks (or an equivalent percentage of the annual rent) of arrears. Without an effective trigger, tenants’ arrears could build up very quickly.

1.3 The definition of vulnerability—to determine which groups of tenants should continue to have their benefit paid direct to their landlord—to be broad and flexible and include financial vulnerability. Failure to draw this definition realistically risks leading to significant increases in arrears among tenants.

1.4 Giving tenants the choice to have their housing costs paid direct to their landlord when they first claim Universal Credit. This would allow claimants time to adjust to the new system gradually, rather than deal with several large changes at once.

1.5 The Government to set out minimum service levels for the provision of local support to claimants and provide sufficient resources to local agencies to ensure that there are no gaps in provision. Advice and support should include help with budgeting and access to banking, help with making and managing claims online, and help in understanding responsibility for rent payments and other bills.

1.6 The Government to ensure that data sharing between local authorities and housing associations is as efficient and timely as possible to allow housing associations and local authorities to target support and resources effectively.

2. Introduction

2.1 Housing associations operate in some of the most deprived and disadvantaged communities in the UK, and understand the importance of getting people into work to tackle poverty and raise aspirations.

2.2 The National Housing Federation supports many of the principles behind the introduction of Universal Credit, from making sure work pays through to simplification of the benefits system. However, the transition to the new system includes many challenges which pose risks to the financial wellbeing of tenants, which in turn present risks for social landlords and for the successful implementation of Universal Credit.

2.3 Our evidence below focuses on the key issues which impact on housing associations and their tenants. These include two which were raised by the Committee in the call for evidence—whether sufficient safeguards are in place to protect social landlords from financial harm resulting from the payment of housing benefit direct to claimants and whether sufficient resources have been allocated to local authorities to provide advice and support to Universal Credit claimants. We have also commented on data sharing between local authorities and housing associations, a crucial aspect of being able to effectively target and provide support to those who need it.

2.4 We would welcome the opportunity to discuss these matters with the Committee in due course.

3. Evidence

Are there sufficient safeguards to protect social landlords from financial harm resulting from the payment of housing benefit direct to claimants?

3.1 For many people, the transition to Universal Credit will mean a move from budgeting weekly or fortnightly to budgeting monthly. Most working-age social housing tenants will also lose the option of having their support for housing costs paid direct to their landlord.

3.2 A recent report, Optimising welfare reform outcomes for social tenants,1 found that 86% of social tenants believe “strongly” that it is better for housing benefit to be paid direct to the landlord so that they are secure in their home. At present, nine in 10 tenants opt for rent to be paid direct to their landlord, with 92% saying they would choose this option again, if given the choice.2

3.3 Welfare Reform Minister Lord Freud has stated that this change, to direct payment to claimants, “…will not undermine social landlords’ finances”3 however, the details of the safeguards to ensure that this is the case are still being worked out. It is essential that the protections intended to be part of the system work as planned. A successful roll out of Universal Credit requires the following safeguards to be in place:

3.4 An efficient “switch-back” mechanism to ensure rent is paid direct to the landlord if a tenant builds up eight weeks (or an equivalent percentage of the annual rent) of arrears. Without an effective trigger, tenants’ arrears could build up very quickly.

3.5 The definition of vulnerability—to determine which groups of tenants should continue to have their benefit paid direct to their landlord—needs to be broad and flexible and include financial vulnerability. Failure to draw this definition realistically risks leading to significant increases in arrears among tenants.

3.6 Additional resources for local agencies to provide advice and support to tenants including help with budgeting and access to banking, help with making and managing claims online, and help in understanding responsibility for rent payments and other bills.

3.7 The Work and Pensions Committee’s report Universal Credit implementation: meeting the needs of vulnerable claimants recommended that during the initial phases of Universal Credit “claimants who currently have their housing costs paid to their landlord should have the option to continue with this arrangement” and that direct payments to claimants should be phased in “after appropriate safety net arrangements for vulnerable people have been developed and tested”.4

3.8 We agree with the Committee’s call to delay the introduction of direct payments to tenants by default. Such a delay would give time for a full evaluation of the Government’s Direct Payment Demonstration Projects before the system is rolled-out nationally, and enable effective safety nets to be arranged for the most vulnerable. Continuing to give tenants the choice to have their housing costs paid direct to their landlord would allow them time to adjust to the new system gradually, rather than deal with several large changes at once.

Arrears Trigger

3.9 In a speech to the National Housing Federation’s annual conference in September 2011 Lord Freud said: “We want to have in place a trigger which switches the housing payment to direct to landlords if tenants start to get behind with their rent. How this trigger will operate—whether it’s by number of payments, amount of money, length of time—are all questions for the demonstration projects. But what isn’t in any doubt is its existence.”5

3.10 A reliable, automatic trigger is an important safeguard to prevent arrears mounting to unsustainable levels that would risk tenant eviction and undermine the ability of social landlords’ to borrow and invest. We are still waiting to see the detailed design of the trigger. It is vital that its design includes and considers the following:

3.11 A landlord may contractually seek possession of a property from eight weeks of arrears. If any process of interviewing or investigating were to extend the process and delay the switch, the tenant could be at serious risk of losing their home.

3.12 Direct payment to landlord should be triggered when arrears have reached a set level; the trigger should operate automatically and must not be delayed by an investigation into vulnerability at the first stage.

3.13 If the trigger takes too long to operate, and the process is too complicated, it could lead to unsustainable levels of arrears being built up.

3.14 Commercial lenders and investors to the sector continue to be concerned that any delay in reverting to direct payment to landlords upon arrears could undermine the stability of rental income streams and risk damaging the sector’s overall strong credit rating.

3.15 Although we understand that the intention is for any switch to direct payment to landlords not to be permanent, it should operate automatically when a set level of arrears has been reached. A conversation with the tenant and assessment of what additional support they might need should happen in parallel with the switch, not before it, as this could result in delays that would prove difficult to manage for both tenant and landlord.

3.16 An effective arrears trigger is an important safety net, however, landlords will want to prevent arrears reaching a level which prompts the switch of payments to them. Other safeguards for vulnerable claimants, including payment exceptions, access to new financial products and appropriate advice and support also need to be available to help prevent rent arrears accruing.

Payment Exceptions

3.18 Payment exceptions which will allow for direct payment of the housing element to landlords, split payments within a household or more frequent than monthly payments of Universal Credit will be available for vulnerable claimants. The existence of payment exceptions within Universal Credit will provide vital safeguards for both tenants and landlords. Policy in this area is still being developed but it is essential that the definition of vulnerability used to identify claimants who are eligible for payment exceptions is broad and flexible.

3.19 A recent report on the groups likely to struggle under Universal Credit, based on interviews with nearly 2,000 people living in social housing, states that: “Risk factors should include not only narrow indicators of vulnerability such a mental health issues or learning disability, but also a wider range of contextual issues such as lack of financial capability, problematic credit and debt and existing problems with meeting rental and other commitments… it will be critical to success to accept that a realistic definition of vulnerability will involve a significant minority of social tenants.”6

Are local authorities being allocated sufficient resources to deliver services such as advice to claimants on Universal Credit?

3.20 As highlighted above, appropriate, tailored support needs to be readily available if all claimants are to make the transition to UC successfully. Information about the changes and advice and support on dealing with them needs to be available before the introduction of Universal Credit.

3.21 The Government needs to set out minimum service levels and ensure that there are no gaps in local provision. Without this there may be significant differences in the support available in different areas. This is particularly important given the localisation of other aspects of welfare provision, including elements of the social fund and support for Council Tax. Support should include help with budgeting and access to banking, help with making and managing claims online, and help in understanding responsibility for rent payments and other bills.

3.22 We are concerned that there is a lack of awareness among claimants about the changes that are going to happen. The Government needs to ensure that sufficient resources are put into raising awareness of Universal Credit, so that claimants understand the reforms before they are affected.

3.23 Government funding for the development of new financial products which allow the ring-fencing of money for rent and other bills is welcome. Such accounts will help many tenants with the transition to the new payment methods, however they are only part of the solution and need to be made available in conjunction with the types of support outlined above.

3.24 Many of those living on low incomes currently manage their money in cash, over short periods, including 51% of benefit-dependent social tenants but also 41% of social tenants in work.7 Such patterns of money management have evolved in response to the challenges of living on a low income. It is easier to forgo essentials, such as food or fuel, for one day a week, but much harder to do so for several days at the end of a month.

3.25 Without substantial support a significant minority of social tenants (29%) are likely to struggle and fail under the new system.8 In the last 12 months, 45% of these tenants have struggled to afford food and 39% fuel, while 49% have struggled to afford shoes and clothing. A half (50%) are experiencing problematic credit use and a third (34%) have consulted debt advice.9

3.26 Demand for support services is likely to increase as many claimants will see their income reduced, due to the benefit cap, social sector size criteria or changes to council tax benefit, and/or face big changes to the way they have to manage their money after the introduction of Universal Credit.

3.27 Early learning from the Direct Payment Demonstration Projects shows that only about half (54%) of respondents thought they would be able to manage direct payment of housing benefit, whereas almost a quarter (24%) reported that they would need support if Housing Benefit were to be paid directly to them.10

3.28 Local authorities and housing associations involved in the Demonstration Projects are finding that putting additional resources into delivering direct payments to tenants is adversely impacting on their ability to undertake their day-to-day business activities. In the long term, this could severely impact on the ability of housing associations to develop affordable homes.

3.29 It is vital that the Government provides local agencies, including local authorities, housing associations and local advice agencies, with additional funds to deliver the support needed to make sure there are no gaps in provision. However, it is not yet clear what, if any, additional funds will be made available by Government to deal with the expected increased demand, and who any funds will be available to. It is also not clear where the responsibility falls for co-ordinating and providing the support that will be needed, especially if there are gaps in provision.

3.30 Housing associations should have access to any additional resources that are made available. Many housing associations already provide a wide range of support, including financial inclusion services, for their tenants, however the expected increase in demand falls outside of their “business-as-usual” provision. Failure to provide additional resources could potentially put tenants at higher risk of arrears, as well as making it harder for housing associations to invest in and develop much-needed new affordable homes.

3.31 The local authority-led Universal Credit pilots will be useful in understanding how local authorities can deliver support, but will not conclude until late 2013—potentially too late to influence the design of the new system. Landlords are assessing what they will be able to do now, so clarity is needed on sources of and funding for support to aid this planning, to achieve a successful transition to Universal Credit.

Other IssuesData Sharing

3.32 Housing associations are actively trying to support their tenants to prepare for the changes. In order to do this effectively they need to know which of their tenants are likely to be affected by the different welfare reforms, in particular the size criteria and the household benefit cap.

3.33 New regulations on the sharing of social security information were published in July 2012. The regulations enable a two-way flow of information, meaning that local authorities and housing associations can work together to identify and assist claimants who are likely to be affected by benefit cuts at an early stage.

3.34 The new legal framework, allowing information to be shared on those who might be affected by the social sector size criteria or benefit cap, is both welcome and important for ensuring that support can be targeted at those who need it. However, practice and implementation on the ground is varied. We understand that a number of local authorities are still waiting for computer upgrades to benefit systems to allow them to use or pass on data.

3.35 Housing associations working in more than one local authority area are encountering different approaches—leading to delays and impacting on how well they are able to target support for their tenants. For example, one association has reported that they have been able to share data with a local authority in which they have only a small number of properties, but the local authority in which most of their stock is based has not yet been able to share the information needed as the required computer systems are not yet in place.

3.36 Government needs to ensure that data is shared as efficiently as possible. Ironing out delays is crucial to ensuring that housing associations and local authorities are able to target support and resources effectively. Where needed, computer system upgrades should be implemented as swiftly as possible and the development of common systems, so local authorities are able to share data in common formats would also be welcome. It would be helpful for local clusters of local authorities to work together and offer suggestions as to the most efficient ways to receive and share data.

4. Conclusion

4.1 The introduction of Universal Credit provides the opportunity for positive improvements including a simpler, more streamlined benefits system and greater work incentives. However, the cumulative impact of the reforms, including the changes to budgeting and payment patterns under Universal Credit, the introduction of the social sector size criteria and benefit cap, the localisation of the social fund and support for Council Tax and the limiting of annual increases to most working-age benefits and tax credits to 1%, remains unknown.

4.2 There is growing unease across the housing association sector that the Government’s implementation of welfare reform will prove extremely challenging for claimants who are already struggling to make ends meet, leading to a significant increase in rent arrears. This, in turn, would severely impact on the ability of housing associations to service their debt, jeopardising their ability to develop affordable homes in the future.

4.3 We hope that the Government will give serious consideration to the issues highlighted in our response, and ensure that the necessary safeguards are in place before the introduction of Universal Credit. The Federation remains committed to working constructively with the Government to ensure the most effective implementation possible.

December 2012

1 Policis (2012) “Optimising welfare reform outcomes for social tenants: Understanding the financial management issues for different tenant groups”. www.housing.org.uk/publications/find_a_publication/general/social_tenants’_finances_and_v.aspx

2 Ibid

3 Lord Freud, 23 May 2012, www.dwp.gov.uk/newsroom/ministers-speeches/2012/23-05-12.shtml

4 Work and Pensions Committee (2012) “Universal Credit implementation: meeting the needs of vulnerable claimants”.

5 Lord Freud, 14 September 2011, www.dwp.gov.uk/newsroom/ministers-speeches/2011/14-09-11.shtml

6 Policis (2012) “Optimising welfare reform outcomes for social tenants”.

7 Ibid

8 Ibid

9 Ibid

10 DWP press release, 30 October 2012, www.dwp.gov.uk/newsroom/press-releases/2012/oct-2012/dwp112-12.shtml

Prepared 28th March 2013