Opinion:Welfare reform may cause an increase in debt amongst tenants unless councils act now
Published by Max Salsbury for 24dash.com in Central Government and also in Housing
Universal credit was brought in to help those claiming benefits become more independent and simplify the benefits system, but is this really the case? Andrew Davis, director of public sector at Callcredit Information Group, explores the potential effects of the government's welfare reforms.
The National Audit Office has recently said the government's flagship welfare reform has been badly managed, is "overambitious" and poor value for money. The BBC has also reported that one in three council tenants is already behind on their rent since the new housing benefit policy took effect – that’s 50,000 tenants falling into arrears since 1 April 2013.
It is clear from these reports that for local government and many social housing tenants the answer is no. However, in the case of simplifying the benefits system the answer is probably yes and long overdue. As already indicated by the BBC, welfare reform, if anything, is going to cause increased financial pressure for local authorities and those claiming benefits unless councils act now and mitigate the risk of money being misspent.
The reality is that for many the current and immediate future economic picture is bleak, the average household debt in the UK currently stands at £6,005 (July 2013), between April and June almost 909,000 people had been unemployed for over a year and the government’s welfare reform is only likely to increase the financial pressure for those families who are already struggling. The knock on effect could see some local authorities face some real challenges and could see a substantial rise in rental arrears and council tax debt.
The government has stated that £465 million a year could be saved to the public purse as a result of the reform, but how seriously has any thought been given to the negative financial impact this will have on local authorities? Clearly not enough, especially when rent arrears are already a problem with 84% of evictions taking place in 2011-12 as a result of outstanding rent. This is likely to increase once housing benefit is paid directly to the tenant rather than to the local authority. It has already been predicted that a million people living in social housing could struggle to manage their finances and pay their rent leading to increased debt. The problem doesn’t stop there. In 2012-13 local authorities wrote off £162m of uncollectable council tax - this too is likely to increase with the introduction of the new benefit changes – leaving those who are most likely to struggle with their finances being expected to manage their finances, an area many may not feel comfortable or capable of doing.
The introduction of welfare reform will have an impact on local authorities and their tenants. If councils want to avoid possible increase in levels of debt they can begin to look at ways in which those most at risk can be identified and subsequently provided with help and advice using clear segmentation and demographic profiling tools. Identifying, understanding and communicating to each tenant in the most appropriate way is the key to mitigating the risk of housing and council tax benefit being misspent.
Having the right data and understanding which tenants are used to using direct debits, who may be struggling financially and which tenants may need further support will not only benefit the council but also their tenants. Some will struggle, some will spend the money and will find themselves in arrears – ultimately with the threat of eviction but this can be prevented with the right data and communication strategies.
Callcredit is advising local authorities to:
- know who your tenants are
- understand their likely financial health post welfare reform
- develop an appropriate communications strategy geared towards the different segments/needs of the population you serve
- develop strategies to deal with those that will not or are unlikely to be able to pay before it is too late
- develop easy ways for people that can and will pay e.g. Direct debit.
Now more than ever, a well executed communication and planning strategy is essential for local authorities if they want to prevent the most vulnerable getting into debt and thousands being owed through rent arrears and council tax.