Work and Pensions Committee - Universal Credit implementation: meeting the needs of vulnerable claimantsWritten evidence submitted by the Council of Mortgage Lenders

This submission includes points previously made by the CML in response to the Social Security Advisory Committee’s call for evidence on draft Universal Credit and related regulations. The move to Universal Credit is one of the most significant challenges for social housing providers, their funders/investors and tenants themselves which has been brought forward by government in many years. For this reason, we feel it is important to re-state our concerns to the Work and Pensions Committee.


1. The Council of Mortgage Lenders (CML) welcomes the opportunity to submit evidence to the inquiry by the Work and Pensions Committee on progress towards the implementation of Universal Credit.

2. The CML is the representative trade body for the UK residential mortgage lending industry. Its 112 members currently hold around 95% of the assets of the UK mortgage market. In addition to lending for home ownership, the CML members have also lent over £138 billion for buy-to-let mortgages to support a private rental market.

3. Over £60 billion UK-wide has been lent by CML members to housing associations for new build, repair and improvement to social housing. This has enabled significant improvement in the condition of existing homes and communities as well as delivering new affordable homes without increasing the use of public money.

4. At the time of the passage of the Welfare Reform Bill, the CML together with the National Housing Federation and professionals across the housing association sector expressed concerns about the potential impact on the viability of housing association businesses of rent direct, the new social sector size criteria (under-occupation/“bedroom tax”) and the overall benefit cap. We have been encouraged by Lord Freud’s publicly stated commitment that welfare reform should not be implemented in a way which undermines the financial viability of the sector.

5. Notwithstanding this commitment, we continue to be concerned that the combined effect of these changes could be to destabilise landlords’ income streams with consequential impacts on lender and investor confidence in the sector, particularly small to medium sized associations.

6. The move to Universal Credit is, therefore, of particular interest to CML members who lend to and invest in the housing association sector.

7. We have responded on the areas where the Committee is interested in receiving evidence:

Proposed arrangements for claims & payments and the provision of support and advice for claimants, including the presumption of a predominantly online, self-service claims process; monthly payment to one person in the household; and arrangements for providing telephone and face-to-face support and independent advice for claimants who need it

8. Arrangements for payments: The CML remains concerned by the slow progress in ensuring key elements are in place. In particular we are concerned that there might be insufficient financial products available to support direct payment to claimants; we are concerned that claimants might be unlikely to opt for banking products which could assist them in household budgeting and making eg rent payments promptly to their landlords. We would support calls from others in the sector that the DWP should prioritise work with the retail banking sector and other providers (such as Credit Unions) to ensure that UC does not fail because claimants cannot receive funds for onward transmission.

9. The “digital by default” presumption: We agree this is a worthy aspiration, but caution that it is likely to take some time to achieve. Not all claimants will have the skills to make an unassisted claim online; not all will be able to access an internet connection or afford one at home. For this reason, more conventional methods of making and processing claims should be maintained until full digital inclusion is achieved; government should commit to maintaining these channels where they continue to be needed. Telephone and face-to-face assistance is likely to be an on-going requirement particularly for disadvantaged and vulnerable groups including those who are homeless. There are also practical considerations about how a claimant will be supported if they cease to be online during the period of a current claim (eg are disconnected owing to financial hardship).

10. Monthly payments to one person: we are aware that concerns have been expressed about equalities issues here, and the potential for financial abuse of vulnerable people including those who may already be suffering domestic violence. We are confident the Committee will give these concerns due weight and urge the DWP to take them on board in their preparations for the move to UC.

11. Support and advice: we are aware that most housing associations are gearing-up their arrangements to support and advise their tenants in preparing for and managing the transition to UC, and this is welcomed. The CML is concerned, however, about the additional costs and overheads associated with the provision of this support, and the extent to which it represents yet another cost of the move to UC which landlords will be expected to bear. We are concerned that intensive and prolonged requirements for advice and support could present a drain on landlords’ cash flows, in addition to the widely-expected increases in rent arrears many could face as a result of rent direct and under-occupancy deductions. We suggest that government and others including the Money Advice Service should have a clear role in supporting and advising claimants, backed with appropriate financial commitment.

Progress with developing the necessary IT systems to administer UC, including the RTI system for PAYE taxation

12. The Real Time Information system is currently in development and testing phases. The administration and payment systems for transmitting funds direct to benefit recipients are similarly in development. Although the CML is not involved in these aspects of preparing for implementation of UC, we observe that many other large government IT projects have been plagued by difficulties, and we would urge the Committee to probe readiness and robustness as deeply as possible so as to minimise the potential for failures such as have been seen in the past. It will be fundamental to the roll-out of UC that these core systems are ready on time and able to cope with the demands placed upon them. The payments system should operate in a swift and flexible way. In terms of rent direct, the system should be sufficiently agile and responsive to quickly switch payments back to a landlord if a tenant has built up rent arrears over a defined period. We support in principle proposals which could allow landlords flexibility in determining the switch-back period, and would wish to be engaged with DWP on development of any such proposals.

Changes to housing benefit; the introduction of the benefit cap; and localisation of council tax support

13. As we have said previously, we believe the DWP does not have a coherent and complete picture of the overall effect of the interaction of key elements of UC—particularly rent direct, the under-occupation measures and the benefit cap. Adding into the mix the proposals for localisation of council tax support makes the picture even less clear. This is very concerning—particularly as lenders and investors to the sector expect clarity and known/quantifiable risk. We are also concerned about the lack of information about regional differences in the impact of these changes—for example the effect of the benefit cap in London or of the under-occupation measures in the North, where much of the housing stock is larger, with few homes available for tenants wishing to downsize.

The level of earnings disregards

14. We welcome Lord Freud’s recent announcements about rental income from a tenant’s sub-letting of a spare room being disregarded entirely—we believe this could help to alleviate financial hardship which might arise from under-occupancy deductions. This could help to sustain tenancies and mean that tenants might not have to move.

Eligibility for and operation of passported benefits

15. We have no particular comment on this at this stage other than to observe that we are now beginning to see different approaches in different parts of the country—for example, with the Scottish Government’s Bill on passported benefits which seeks to militate against some of the stronger impacts of the move to UC. Lenders and investors tend to operate across national borders, and this difference of approaches could make assessment of credit risk in the sector as a whole more complex.

Impact monitoring: what the DWP’s priorities should be for monitoring the impact of the transition to Universal Credit

16. The impact of the transition to UC and rent direct on housing association businesses will take some time to manifest; it will be extremely difficult to disentangle, for example, the effect of rent direct on arrears levels from that of the benefit cap and the under-occupation measure. There appears to be, within the DWP, no clear strategy for monitoring and evaluating the overall effect of these changes not only on housing association businesses, but on lender/investor confidence in the sector.

17. Although the government is currently running a series of rent direct “demonstration projects” across the country until June 2013, to be closely followed by a UC Pathfinder project, the CML is concerned not only that these projects are running in a self-contained way (not looking at the interacting effects of under-occupation or the benefit cap), but also that the learning from these projects and pathfinders will emerge after the arrangements for the UC system (regulations; payments systems etc) have been set. While we note and accept that the rent direct projects are running on an “active learning” basis, we remain sceptical of their ability to influence any major changes to UC if that is what the learning suggests is required.

18. The CML is pleased that, as part of the work to evaluate the projects being undertaken by Sheffield Hallam University, a short series of interviews is being arranged with key lenders and investors to the sector to gather qualitative evidence about their perceptions and understanding of the potential impacts of the move to direct payment. We remain concerned, however, that there still appears to be no empirical measure by which the impact of this change (and the success of the projects) will be judged. From a DWP point of view, we understand “success” will maximise the number of claimants in receipt of direct payments; but there is still no measure of the impact (successful or otherwise) of this change on arrears levels and how they translate through into bad debt, voids and then further, over time, into the overall risk and credit worthiness of the sector.

19. We note that the Communities and Local Government Committee recently recommended in its report on financing of new housing supply that government should set out clear criteria by which the success of the rent direct demonstration projects will be judged, and that it fully involve social housing providers and lenders in the process.

20. We suggest that government should undertake further work to define the success criteria for the rent direct demonstration projects in the context of the impact of rent direct on lender and investor confidence in the sector. Further, we suggest that both DWP and DCLG should undertake longer-term monitoring and evaluation of the move to UC and, in particular, the interacting effects of key elements including rent direct, under-occupation measures and the benefit cap; and that it should be receptive to any emerging findings which suggest the system should be changed to protect the long-term financial viability of the sector and maintain its strong credit rating and attractiveness to investors.

17 August 2012

Prepared 21st November 2012