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

Summary

Shelter welcomes the committee’s decision to hold an inquiry into the implementation of Universal Credit (UC). There are few precedents for reforms of this scale and ambition so it is vital that the implementation phase is monitored closely and risks identified and mitigated.

Shelter supports the original principles of the UC and our interest is in ensuring that the new system reflects these, operates effectively and delivers a positive impact for claimants, while being efficient and workable for government and local authorities.

More than one million people a year come to Shelter for advice and support via our website, helplines and national network of services. Our evidence is therefore based on our experience giving housing and benefits advice to people on the frontline.

Given our area of expertise, this response focuses on the aspects of the UC which will cover housing costs, as well as general issues relating to administration. We have focused on areas where we perceive there are unanswered questions, and suggested issues for the committee to investigate. It may be the case that on many of these points the government has the issue in hand, and we would welcome reassurance of this.

Areas where we do not have particular expertise—such as changes in the income entitlement of disabled people, and eligibility for and the operation of passported benefits—we have declined to comment.

Our primary areas of concern are as follows:

Arrangements for direct payments including the provision of suitable banking products.

Digital exclusion.

The availability of independent advice.

Arrangements for funding temporary accommodation.

Evidence

The proposed arrangements for claims and payments and the provision of support and advice for claimants

Direct payments

1. Shelter’s greatest concern about the proposed arrangements for payments is in relation to direct payments. The introduction of Local Housing Allowance (LHA) in the private rented sector brought in a default assumption that tenants should receive their housing benefit direct to their own bank account rather than to their landlord’s. We understand and welcome the drivers behind this in terms of promoting claimant responsibility. However, it creates many practical problems and despite the fact that vulnerable people are exempt, many low income households have found the system difficult to manage. This has created significant frustration for private landlords, discouraging them from operating in the Housing Benefit (HB) market. Therefore Shelter’s position has always been that tenants should have a choice over how their payments are made.

2. Under UC the direct payments system will be rolled out to all HB claimants, including those in social housing. Social landlords and their lenders have voiced considerable concern at the implications of direct payments for social tenants, including for their ability to secure finance for new affordable housing supply. Combined with the move towards monthly unified payments, there is considerable apprehension as to how many social tenants will manage their incomes. The Department for Work and Pensions (DWP) has agreed to a series of demonstration projects to test the problems created by such a move, but remains committed to the principle.

3. We think it is crucial that the government has good systems in place to correctly identify tenants who are vulnerable or in arrears in order to trigger landlord payments instead and stop arrears building up. We suggest that the committee asks DWP how vulnerable tenants will be defined and if certain categories of households, for example those in temporary accommodation, will automatically be exempt to avoid unnecessary bureaucracy.

4. We also suggest the Committee seeks clarity on how landlord payments will function when a tenant is receiving a partial award for UC due to their income. We recommend any landlord payment should be based on the original housing component (assuming this is less than the total UC payable) and the award to the claimant reduced accordingly. This would essentially prioritise housing costs.

Bank accounts

5. The other important issue is the need for claimants to have suitable bank accounts into which they can receive their UC payments and make rent payments from, as this will not necessarily currently be the case. For example, Post Office accounts do not support direct debits. The DWP should work with the banking industry to ensure that suitable financial products are available. There is a big opportunity here as the introduction of UC could be a catalyst for improving banking products more generally for low-income households.

6. Ministers have spoken of the possibility of “jam jar” accounts or escrow products, which would prevent the housing element of UC being diverted to cover overdraft fees and other direct debits. It is unclear how ready banks are to provide such products so we recommend that the Committee asks DWP what discussions have already taken place with the banking industry to ensure that suitable financial products will be available to support social tenants handling HB for the first time. At an absolute minimum this must include access to basic bank accounts so that claimants can receive Universal Credit. But products must also ensure that households can easily protect the housing component of Universal Credit so that their rent payments can be met on time.

Digital by default

7. Under UC the vast majority of claims will be made online. Given that only 77% of households have internet access and 17% of the population have never used the internet,1 we believe there is a risk that vulnerable claimants will be left behind. Unsurprisingly, lower income households are more likely to have never used the internet and only 63% of all tenants have an internet connection at home.2 Libraries do not provide guaranteed provision, especially for people living in rural areas. Internet cafes are not universally available and are not free at the point of use.

8. We recommend that alternative channels are retained in the first instance for households who are unable to self-serve online, and for complex cases. As digital inclusion is extended, and if UC simplification is successful, than these can be scaled back over time as need declines.

9. The Department has said that an element of telephone and face to face support will be retained for a small minority of households, but has provided very few details of who will be eligible to access this or how it will be provided. We recommend that the Committee asks ministers to provide further detail on what criteria claimants will have to meet in order to opt out of online claims.

Provision of advice

10. While UC will hopefully bring in significant simplification of the benefit system, the transition period between the two schemes will be particularly resource intensive for advice providers and claimants will still need access to benefits advice on an ongoing basis. It is important that independent advice is available for claimants through the transition period and beyond, but the DWP have not made any funding available to: a) plug the gap that will be created by cuts to legal aid or b) provide for the mass training that will be necessary across the advice sector in order that they are equipped to deal with the changes under UC.

Payment period

11. HB is paid either every two or every four weeks in arrears. Under UC it will be paid by calendar month, also in arrears. This may create some additional budgeting challenges. The system is intended to mimic salary payments. However, half of lower income tenants are paid at more frequent intervals. In addition fixed monthly payments are unlikely to align with the date when salaries are paid even in the event of monthly payments. There are no guarantees that UC payments will align with rent cycles and a tenant could be in the position of trying to safeguard the next month’s rental payment for nearly the entire four week period.

12. The payment of HB in arrears has long been criticised because it sits poorly with the convention of rent being paid in advance. As such many tenants on HB will find that they are in arrears by default and a small delay in processing a monthly UC claim could result in tenants technically being eight weeks in arrears, which can be the trigger for landlords to initiate eviction proceedings. Both rent in advance and deposits are normal requirements for non-HB tenants and the inability of many claimants to provide these sums puts them at an additional disadvantage in the market, which already views housing benefit claimants unfavourably. UC does not attempt to rectify these concerns and households will continue to receive support for housing costs in arrears.

Progress with developing the necessary IT systems to administer Universal Credit

13. We do not currently have a clear sense of the level of readiness of the IT systems required to administer UC. We would be interested to know:

How assessment periods and payment cycles will align and after how long will a change in income be reflected in a change in UC payment.

How long it will take for a change in housing cost to be accounted for in a revised UC payment.

If housing costs are only payable part way through an assessment period, for example because a claimant has moved into their own accommodation, how this will be reflected in the following UC payment.

The proposed arrangements for the “claimant commitment”, sanctions and hardship payments.

14. Ministers have claimed that the housing component of UC will be protected from sanctions. However, this will not be the case when in-work conditionality is introduced and a claimant receiving a partial award (due to the taper) is sanctioned. The sanction will be a fixed sum, equal to the amount Universal Credit pays out for basic living expenses. Because of this the sanction will have to erode the housing component of Universal Credit when the overall award has been reduced due to earnings. DWP claims it would undermine the effectiveness of the sanction if it too were tapered.

15. Claimants will be sanctioned for up to three years if they do not comply with the claimant commitment. This creates a real risk of hardship and it is therefore vital that the claimant commitment recognises a household’s individual circumstances and barriers to seeking work, for example homelessness. Committee should ask the DWP how the claimant commitment will recognise the additional challenges created by homelessness, including living in temporary accommodation.

The impact of the changes on local authorities

16. We support the fact that the UC will absorb HB, but we are concerned about the role of HB officers being downgraded or ended entirely. Many issues arising with claimants involve either an element of discretion or benefit from local knowledge, for example: DHP (Discretionary Housing Payments) awards; SAR (Shared Accommodation Rate) exemptions; overlapping liability; and cases where the rent officer rules that a social rent is greater than is reasonable to be met by UC. We would suggest it might be more efficient to retain HB officers as a local point of contact for complex cases, allowing them to link in to the UC back office, at least during the implementation phase.

17. The overall household benefit cap, which is being introduced ahead of UC, will be challenging for local authorities to implement. The cap will increase the risk of homelessness and of the numbers of people seeking help from their local authority. For this reason we had called for it to be delayed until UC was in place to minimise transitional difficulties.

18. The DWP still has not said how temporary accommodation (as well as exempt accommodation) will be funded under UC. Temporary accommodation is used to house homeless households and is funded via a separate HB subsidy. We are concerned that a lack of detail on how TA will be funded after April 2013 is now causing difficulties for LAs who have to plan how they will meet their legal duties towards homeless households. The National Homelessness Advice Service reports some landlords are already pulling contracts to provide TA.

19. Linked to this is the problem the benefit cap will create when homeless households are placed in temporary accommodation. Homeless households in temporary accommodation (TA) are liable for a “reasonable charge” for their accommodation, which can be covered by HB if the household is on a low income. Temporary accommodation tends to be more expensive than rents in the mainstream private rented sector, and is considerably more expensive than social housing rents, creating a high risk that rents will not be affordable under the overall benefit cap.

20. Because households are placed in TA by local authorities, they will have little scope to move to reduce their housing costs and under the Homelessness Code of Guidance local authorities cannot ask households to make up the shortfall through other benefits if this would deprive the household of “basic essentials such as food, clothing, heating, transport and other essentials.” Attempts to procure TA which is affordable under the cap will create the risk of widespread out of area placements, which the Housing Minister has warned against: “The most vulnerable in our communities who find themselves homeless through no fault of their own deserve a safe and secure roof over their heads, close to their community wherever possible.”3 Alternatively local authorities will have to incur additional costs to provide temporary accommodation to households owed a legal duty.

21. Throughout the Bill’s passage, Shelter, along with others, called for households in TA to be exempt from the overall benefit cap. The Minister refused an explicit exemption but promised to look at assistance for “hard cases” to ensure regulations provided the “appropriate protection” for households in TA. It is not at all clear from the regulations what protection is now being proposed. We encourage the committee to ask the DWP how they intend to provide appropriate protection for homeless households.

22. We strongly recommend that an exemption for households in temporary accommodation is included in the final regulations. This could satisfactorily be achieved by exempting all statutory homeless households from cap restrictions or simply ignoring the cost of temporary accommodation when calculating whether the cap is applied.

23. Lord Freud said repeatedly in Parliament that the forthcoming reform of TA subsidy would be informed by its interaction with the cap and impact on final decisions around mitigation. It is very concerning that the draft regulations have been published before the TA subsidy reform proposals are available. We encourage the committee to ask the DWP when the revised TA subsidy will be published and what the Department’s current thinking is. Lack of draft proposals has prevented proper scrutiny of the interaction between the cap and TA. Lord Freud said: “We need to get a solution to this so that we do not have a ludicrous go-round of people moving into expensive temporary accommodation which they can no longer pay for because of the cap. We are absolutely aware of this and have measures in train to get a solution in the round to that issue.”4 Based on the available information we still believe the cap risks creating a “ludicrous go-round” where families are made homeless by the cap and then placed in unaffordable TA.

The level of the earnings disregards

24. Final disregard levels are still to be confirmed, as are the values of the standard allowance and amounts for children in UC. These decisions will be critical and we encourage the committee to Press DWP for an indication of how these will compare to existing benefit rates.

25. Two income disregards will apply: a higher rate for claimants who do not receive support with housing costs and a lower rate for those who do. In practice it will only be renters who are subject to the lower rate because SMI will stop as soon as a claimant enters work. The dual disregards undermine UC’s attempts at simplicity but are intended to create more equal treatment between those in and not in receipt of support for housing costs. It is a simplification of the DWP’s original proposal for a variable disregard based on 1.5 times the amount paid for housing costs and subject to a disregard floor. This will create slightly poorer outcomes for households receiving a very small amount of support towards their housing costs as the price of greater simplification.

Impact monitoring

26. Shelter has opposed the move to up-rate LHA (Local Housing Allowance) rates by CPI (Consumer Prices Index) rather than local rents. This breaks the long-standing principle to link HB payments to housing costs, either actual or representative, and marks a fundamental change in the calculation of HB. Historically CPI has risen at a much slower rate than actual private rents. Between 1997 and 2007 private rents increased by 70% but CPI increased by only 20%.5 The implication of this is sadly obvious—over time LHA rates will fall out of step with actual rents and tenants on HB will find it increasingly difficult to find affordable accommodation.

27. The Minister for Welfare Reform recognised the risk that LHA values would erode at various points during the passage of the Welfare Reform Act. The Minister told Parliament: “In particular, we may need to increase LHA rates if growth in rents and the CPI are so out of sync that there is a critical lack of affordable housing.” The Minister dismissed concerns of long-term erosion by insisting that the measure is only locked in for two years. However, we are concerned that without an explicit commitment to review and re-link, a future government is unlikely to rebase LHA rates until the Housing Benefit sub-market is at crisis point.

28. We would like to see the impact of CPI formally reviewed at the end of 201415 with a commitment to re-linking LHA rates to at least the 30th percentile if necessary. This decision should be informed by the ongoing DWP monitoring project into the first wave of LHA reforms. Based on this study it may emerge that the 30th percentile is itself insufficient to house the number of private renters in receipt of LHA. If this is the case than re-linking LHA rates to the 30th percentile will not do enough to correct a critical lack of affordable housing and a larger correction of LHA rates will be necessary.

15 August 2012