Support for housing costs in the reformed welfare system - Work and Pensions Committee Contents

8  Universal Credit

149. Under Universal Credit, Housing Benefit will cease to be a separate benefit and will be incorporated into the single household Universal Credit payment. Under UC, support for housing costs will be administered centrally by DWP (rather than by local authorities) and paid directly to tenants once a month.

Direct Payments

150. Currently, in the social sector, Housing Benefit is paid to landlords. In the private rented sector, most tenants receive their Housing Benefit direct and pay their rent to the landlord themselves, unless other arrangements have been made because of a specific identified need. The default position under UC will be that all the benefit (including help with housing costs for both social and private sector tenants) will be paid directly to one bank account in each claimant household on a monthly basis. This policy is intended to "encourage people to manage their own budget in the same way as other [working] households" by more closely resembling the way in which people in paid work receive their income.[157]

151. To help ensure that vulnerable people do not accrue unmanageable levels of rent arrears the Government has made an exception from direct payments for "vulnerable claimants", whereby alternative payment arrangements can be put in place. These include: more frequent payments; splitting payments between household members; or paying support for housing costs directly to the landlord.[158]

152. Many witnesses voiced concerns about tenants' capacity to manage direct payments of housing costs.[159] The Children's Society told us that direct payments "would be a significant change for many households living in the social rented sector" and said that it was "concerned that some families with children may struggle to manage their rental payments." It cited a study showing that 86% of social tenants believed that it was better for Housing Benefit to be paid direct to the landlord and 35% thought they would have trouble keeping up rental payments.[160] StepChange Debt Charity had similar concerns.[161]

153. Citizens Advice and Z2K both recommended that tenants should be given the choice of opting-in to having their rent paid directly to their landlord. Citizens Advice argued that the option should, at the very least, "be available for a transitional period of no less than a year, to enable any necessary money advice and financial capability support to be put in place." It also recommended that adequate support be put in place by both central and local government to assist tenants with money advice to help them "transition to the new system."[162]

154. The Chartered Institute of Housing was concerned that tenants and landlords were not equipped to manage the behavioural changes associated with moving to direct payments. It recognised that financial products such as budgeting and "jam jar" accounts could help tenants manage their UC more effectively, but warned that barriers to using financial products must be recognised and addressed before the system was introduced nationally.[163] Riverside Housing Group emphasised that tenants must be given "appropriate tools to manage their housing payments under UC".[164]

155. Circle Housing Group was concerned that the housing costs element of Universal Credit would not be clearly defined within the total benefit payment. This, it argued, would make it more difficult for tenants to have the housing costs element deducted at source, which might be an essential element in helping more vulnerable claimants to budget their benefit income.[165]

Direct Payment Demonstration Projects

156. To test the impact of direct payment to tenants in the social sector, the Government set up six Direct Payment Demonstration Projects, which have been running since the summer of 2012. The Government believes that the "evidence from the projects indicates that most people will be able to cope with managing a monthly budget and paying their rent."[166] Results from the projects in December 2013 were that successful rent collection varied from 89% to 97% across the different areas (down from 91% to 97% in May 2013). The average rent collection rate was 94%, which remained unchanged from May 2013. In May 2013, 6,168 tenants were being paid by direct payment. This fell to 4,719 by December 2013 owing to payments being switched back to landlords.[167]

157. The Children's Society was concerned about this high level of switch backs which equated to 20% of claimants in the demonstration projects. Dr Sam Royston highlighted that the review had found that the projects involved "quite resource intensive interventions" which it might not be possible to replicate once UC is rolled out nationally.[168]

158. The Coalition of Care and Support Providers in Scotland was also concerned about the level of support that housing providers and other support organisations would need to give to tenants to help them in budgeting and paying their rent under direct payments. Based on Scottish experience under the demonstration projects, far more resources might be needed to help tenants under direct payments than is currently available and it was concerned that the necessary provision would not be put in place by Government. Z2K concurred with this assessment. [169]

159. We recommend that DWP publish the full evidence from the Direct Payment Demonstration Projects as soon as possible. This will assist landlords and local authorities across the country in drawing up necessary policies and procedures as Universal Credit is rolled out, and will allow time to consider whether further amendments to regulations are required.

The Local Support Services Framework

160. DWP has recognised that some UC claimants are likely to require advice and support with budgeting and using IT under the UC system.[170] A Local Support Services Framework (LSSF), published jointly by the Local Government Association (LGA) and DWP in February 2013, set out a very broad framework for how this support might be delivered locally through partnership working between DWP, local authorities, and contracted providers, including voluntary organisations.[171]

161. Local authorities will be expected to continue to provide welfare and housing advice and solutions to their residents from existing local government funding. There will be new funding for additional UC-related support services. Local Delivery Partnership Agreements will set out the maximum amount the DWP is willing to fund and the minimum level of funding that local authorities could expect to receive.

162. The Government published an updated LSSF and plan for trialling different approaches in December 2013. A final version of the LSSF is expected in autumn 2014.[172] Lord Freud told us that the LSSF was "almost as important as Universal Credit itself".[173]

163. Dr Royston emphasised that the Government needed to make clear what level of funding would be provided to support arrangements outlined in the LSSF and when local authorities would be given access to the funding. St Mungo's echoed this point, adding that around 3.5 million people are estimated to be likely to require support under the LSSF across a wide range of needs.[174]

164. There are also increased risks for landlords under UC. The Registered Landlords Association (RLA) pointed out that many private sector tenants who claimed benefit would be used to receiving it on a weekly basis. It felt that the transition from weekly to monthly payment of benefits under UC would be difficult for tenants to manage. Monthly payment would also mean that landlords would have to wait longer for payments which carries greater risk of default due to increased pressure on tenants to budget over a longer period.[175]

165. The RLA did not believe it was fair for private landlords to have to carry the risks associated with the Government's reform in terms of the way in which benefit claimants budget if it meant that landlords ended up with unmanageable levels of arrears. It also pointed out that there was not yet sufficient clarity on how advance payments for rent would work under Universal Credit. It recommended that the LSSF be designed with the issues affecting the private rented sector in mind, and that it should incorporate the private sector into local delivery partnerships effectively.[176]

166. We will discuss the Local Support Services Framework in more detail in our forthcoming report on progress with Universal Credit implementation.

167. We are concerned that some Universal Credit claimants may struggle to manage direct payments of housing costs, even with the additional support that is envisaged. Local authorities may not be able to identify vulnerable people until they have incurred significant arrears, potentially leading to debt problems and evictions and financial difficulties for landlords. We acknowledge the steps the Government has taken to date to respond to this challenge through development of the Local Support Services Framework. However, we believe that a more fundamental change is needed for vulnerable claimants. We recommend that the Government allow vulnerable tenants to opt in to having their housing costs support paid direct to their landlords if this is their preference, at least for the first few years of a UC claim, as a transitional measure. We also recommend that Universal Credit claimants receive a breakdown showing the elements which make up the total UC payment, and which clearly indicates the portion of the payment which is intended to be used for housing costs.

168. Housing Benefit as it currently operates is complex to administer. Incorporating support for housing costs into Universal Credit may address some of the complexities, but it may have unintended adverse consequences. We have just begun a new inquiry into fraud and error in the benefit system. This has highlighted that Housing Benefit is subject to a number of specific fraud and error risks and that the monetary value of overpayments of Housing Benefits is twice that of any other benefit. Early evidence has indicated that incorporating housing costs into Universal Credit may heighten the risks of fraud and error because of the apparent lack of data-sharing and cross-checking of property details, which exist in the current HB system, but which have not yet been built into the UC system. Local knowledge about their housing sectors which LAs currently bring to HB administration could also be lost. We will pursue these concerns further in our fraud and error inquiry.

Work allowances under Universal Credit

169. Under the work incentives system within Universal Credit, benefit will be tapered on the basis of "work allowances" (previously termed "disregards") which will differ depending on whether households have eligible housing costs. This work allowance will govern how much income from paid employment the claimant can receive before their UC payment is reduced.

170. The initial proposals for UC set out a maximum allowance for those claiming no support for housing costs; for those claiming support for housing costs, this maximum would be reduced by 1.5 times the support for housing costs claimed, down to a set minimum level. Under these proposals claimants would always have been better off if they claimed support for eligible housing costs.

171. DWP has since revised work allowances. There will be a maximum work allowance for those claiming no support for housing costs, and a minimum allowance for those claiming support for housing costs. The Children's Society was concerned that this would mean that some households would be better off not claiming support for housing, even where they had eligible costs. Dr Royston argued that:

    Most parents are not going to be aware of this and will just get a lower level of support as a result. It would be much simpler, although it looks like a more complex system, for the DWP to go back to their original proposal to make sure that people have a guaranteed safety net, so that, if they claim support with housing costs, they will be better off regardless.[177]

172. The revised system of work allowances (disregards) under Universal Credit appears simpler than the original proposals. However, it risks creating an anomaly which would mean that some claimants who are in work and have eligible housing costs would receive more benefit if they did not claim the support for housing costs which they are entitled to. Many claimants may not be aware of this anomaly and so may end up receiving less than their full entitlement of Universal Credit. We recommend that the Government revisit work allowances under Universal Credit and take steps to address this anomaly.

157   DWP, Universal Credit: Welfare that Works, Cm 7957, November 2010, para 31 Back

158   Department for Work and Pensions, Explanatory Memorandum for the Social Security Advisory Committee, June 2012 Back

159   National Housing Federation (HCT 31) para 3.3; Scottish Federation of Housing Associations (HCT 49) para 3.6; Chartered Institute of Housing (HCT 63) para 1.22 Back

160   The Children's Society (HCT 80) para 4iii Back

161   StepChange Debt Charity (HCT 73) paras 9, 16&17 Back

162   Citizens Advice (HCT 77) para 2.26 & 2.28; Zacchaeus 2000 Trust (HCT 35) para 6 Back

163   Chartered Institute of Housing (HCT 63) para 1.22 Back

164   The Riverside Group Ltd (HCT 33) paras 4.3 Back

165   Circle Housing Group (HCT 26) para 5.1 Back

166   DWP (HCT 08) para 9.4  Back

167   DWP, Direct Payment Demonstration Project: Learning and Payment figures, May 2013; DWP, Direct Payment Demonstration Project: Learning and Payment figures - Payment 14, December 2013 Back

168   Oral evidence taken on 15 January 2014, Q359 Back

169   Coalition of Care and Support Providers in Scotland (HCT 22) para 3.1; Zacchaeus 2000 Trust (HCT 35) para 5; Scottish Federation of Housing Associations (HCT 49) paras 6.1.1.-6.1.2. Back

170   Government response to the Committee's Third Report of Session 2012-13, Universal Credit implementation: meeting the needs of vulnerable claimants, February 2013, Cm 8537, paras 23-26 Back

171   DWP, Universal Credit, Local Support Services Framework, February 2013 Back

172   DWP, Universal Credit, Local Support Services Update and Trialling Plan, December 2013 Back

173   Oral evidence taken on 12 February 2014, Q630 Back

174   Oral evidence taken on 15 January 2014, Q360 Back

175   Residential Landlords Association (HCT 55) paras 4.1.2.-4.2.1, 4.3.2. Back

176   Residential Landlords Association (HCT 55) paras 4.1.2.-4.2.1,4.5.1-4.6.1 Back

177   Oral evidence taken on 15 January 2014, Q371 Back

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Prepared 2 April 2014