Credit where it's due: Universal Credit, social landlords and direct payments

Published by Jon Land for 24dash.com in Housing and also in Featured

It threatens to create a sharp spike in rent arrears and lead to interest hikes on bank loans, but the Government remains committed to paying the new Universal Credit direct to social tenants, not landlords.

But as we stand on the cusp of the biggest shake-up to the welfare state since Beveridge, a forum staged by the G15 group of housing associations, attended by Government welfare officials and chaired by 24housing magazine, reveals that amid reform and risk lies reward and opportunity. Ross Macmillan reports.

“It’s expected that the great majority of social tenants in receipt of Universal Credit will have their benefit paid to them rather than to their landlord.”

The words of Eugene Nixon – part of the Department for Work and Pensions’ (DWP) Universal Credit team – underline the ‘behaviour change’ philosophy currently driving Iain Duncan Smith’s welfare reform bus. Destination – “back to work”.

Mr Nixon was speaking at a specially-convened roundtable event brought together by the G15 group of housing associations and payment solutions company allpay, where he and his DWP colleague, Richard Llewellyn-Davies, fielded questions on the potential impact of the Universal Credit programme on social landlords and tenants.

A new direction

The decision to pay the housing benefit component of Universal Credit, which is due to come into effect from 2013, to tenants not social landlords, has become one of the sector’s biggest talking points.

Although provision will remain for payments to be made direct to landlords in the case of ‘vulnerable tenants’ (define that if you dare), the starting point will see tenants paid directly.

More frustrating for social landlords trying to model the full impacts of the reform is the sparse detail that has come out of Whitehall; eloquently summed up by forum chair and 24housing editor Jon Land in his opening address: “Part of the problem lies in the fact that the Government doesn’t have a great track record of doing detail.”

Risks of debt price hikes from banks on the expectation that arrears will soar have been well documented.

Rather unhelpfully, however, the proposals have also been blurred by the £500 cap on household benefits from 2013 – which is a separate reform aimed at cutting the £20 billion benefit bill. As the DWP were keen to point out, Universal Credit is simply about the delivery.

The case for simplifying the benefits system through Universal Credit has cross-party support in the House of Commons.

All are agreed that the current system of paying several out-of-work benefits – all on varying withdrawal rates and accessed from across four agencies – is confusing and complex.

There are also doubts as to whether the current system actually helps people back into work. This is underlined by the fact that nearly 30% of working age people receiving out-of-work benefits have done so for nine of the last 10 years, according to DWP figures.

The housing sector has also welcomed a simpler one-off payment, on a single taper rate, from a single agency, that is reduced at a rate that makes works pay.

What’s been harder to accept, is directing the payment to tenants. This, associations and banks argue, will expose their income streams from tenants who won’t prioritise and pay their rent.

Family Mosaic estimates that this exposure to its “protected income” – would increase its arrears from £7m to £11.3m.

The logic behind the move away from direct payments to landlords, says the DWP’s Richard Llewellyn-Davies, comes back to the Government’s key objective – getting people back into work.

“The rationale to pay it directly is that if you are moving back into work and claimants are on a taper that causes problems if the welfare payments are split between different agencies,” he says. “The idea of having the tenant pay their own rent is that if they go into work their income from benefit falls while their income from earnings rises, but actually they don’t then have to go round and change everything in terms of the way that their payments and services are set up.

The National Housing Federation (NHF) wants tenants to be given a choice to decide if their housing costs go directly to the landlord – as is currently the case for housing association, but not council tenants.

Stuart Ropke, head of investment policy and strategy at the NHF, says: “The Council of Mortgage Lenders estimates that the removal of benefit direct to landlords would result in finance costing 100 basis points more; 1% more on average. If you look at the loan book across the sector, circa £65m, and if you assume it’s not just new money they’ll look to charge that extra money on but the back book as well, some basic modelling suggests it would result in an additional cost of £30m in interest charges across the sector a year. That could be used to secure money in the region of £500m – that’s 3,000 homes a year that would be built. That’s before you include factors such as increased costs in chasing arrears.”

Incidentally, Family Mosaic estimates that the additional staff resources that would need to be deployed to collect rent would amount to £340,000.

Safeguards

So what of the safeguarding mechanism? Both DWP officials remain cagey of detail but say colleagues in housing policy are in discussion with the NHF and social landlord representatives about it. “There’s a recognition of the issue and it’s being tackled,” says Llewellyn-Davies. “RSLs are important to the department so we’re not going to just ignore their needs.”

In a press briefing ahead of his keynote address at the Chartered Institute of Housing Conference in June, housing minister Grant Shapps said he was working with DWP to safeguard social landlords’ income and said safeguards would be in place to protect rental income in concern of vulnerable tenants.

It has prompted immediate comparisons to the private rented sector where if a tenant is eight weeks or more in arrears, councils will pay the benefit direct to the landlord.

Would housing associations be happy if such a safeguarded existed in social housing? Ken Youngman, finance director for Family Mosaic, which has around 20,000 homes for rent, said he would be thankful for any safeguard and that eight weeks “wouldn’t cause too much of a problem.”

However, Pete Maris, policy officer, Metropolitan Housing Partnership – which manages more than 35,000 homes – believes eight weeks on homes let on higher Affordable Rent homes could prove “disastrous”, and said four weeks would be more appropriate.

“If you’re a housing association operating in London or the South East with a number of properties being let on the higher Affordable Rents actually eight weeks arrears could be in excess of £2,500. That’s a devastating amount of money,” says Stuart Ropke.

“We need to be careful about assuming that the safeguard arrangements for Universal Credit will mirror those that already exist for local housing allowance, warns the DWP’s Eugene Nixon. “It’s a different client base and the issues are likely to be different.”

“There were all kinds of forecasts and predictions around the time the LHA was being rolled out that this was going to lead to mass homelessness and that nobody was going to pay their rent,” says Llewellyn-Davies. “But actually I think the overall picture across the county is that about 20% of LHA payments are direct to landlords and 80% are paid by tenants. So, although the client groups are different, there is some basis for looking at the LHA and saying direct payments to tenants can work.”

The burning issue, therefore, may come down to the definition of vulnerable, something that, according to Stuart Ropke, will be incredibly difficult to define.

Ropke says discussions with DWP have focused on how you define vulnerability. He highlighted research by Home Group to demonstrate the problem. “Home Group did some tenant profiling and what they found out was that 37% of their tenants over the last five-year period had at one stage or another been in arrears of eight weeks or more; with well over 50% in arrears of four weeks or more.

“It found there wasn’t a common factor among those tenants that had been in arrears. There were no pre-identified marks you could pick up on that those households were likely to go into arrears.”

Fitting the bill

So can choice exist with safeguards? Payment specialist allpay – which works with 71 of the top 100 housing associations, including the G15 – provides user friendly ways for tenants to pay their rents, (e.g. swipecards, direct debits, phone payments, etc.)

It says it already has options to give tenants a degree of choice in directing their housing payment to landlords that also offers safeguards to the housing association. The company also confirmed it is in discussions with a major high street lender about bringing the proposals to market.

Two options that already exist include a ‘synchronised payment’ option where the tenant signs up to a special account and the element associated with the housing payment automatically goes straight to the landlord.

Another option on the table is the well-trailed jam jar account where, once the payment hits the tenant’s account, the housing element is automatically moved into a dedicated account for the landlord to access. Any surplus funds are then used by the tenant.

Both options, says allpay’s Nick Peplow, could fit the bill. “To some extent that is giving the tenant the choice because they decide that option but it’s also giving landlords that control and certainty that those funds are coming in directly,” he says.

Ropke says the proposals are interesting but warns: “I don’t actually see a consumer choice to have benefit paid as soon as it hits your account.

“Perhaps it’s one of those third-way options Government quite likes because it looks like they’re delivering their policy aims.”  

“The jam jar account is one we’re looking at seriously,” says Llewellyn-Davies. “The idea is to protect social landlord income at the same time as giving tenants a choice over how their money operates. Some of the payment solutions put on the table are very welcome.”

Sink or swim

With new claimants affected from October 2013 – and the existing caseload of 4.8 million housing benefit claimants to be targeted from April 2014 – the sector has time to prepare for the introduction of Universal Credit.
 
“It’s no good whingeing like ninnies about our transactions and arrears because we’ve just got to get on with it, and there is time,” says Family Mosaic’s Ken Youngman.

Youngman’s comments reflect a commitment to help support change but in a way that doesn’t adversely impact on the sector’s priorities.

A scary thought raised at the summit was the nightmare scenario of a new government coming to power in 2015 and scrapping the Universal Credit plans altogether.

Nevertheless, destination “back to work” is upon us, and the welfare reform bus shows no sign of a u-turn.

Centrally administered

Central to Universal Credit will be that 75% of processes can be automated. “We expect most customers will claim online and that they will subsequently manage their Universal Credit Account online,” says Eugene Nixon, part of the Department for Work and Pensions (DWP) Universal Credit team. “However phone and face to face will also be available where it’s needed.”

Local authority involvement in Universal Credit is being looked at, he says. A letter will shortly be sent to local authority chiefs from DWP and Communities and Local Government setting out plans for future delivery of Universal Credit. “Councils will continue to have a role during the transition period,” says Nixon. “It’s expected local authorities will continue to deliver housing benefit services to 2018 by which the Government expects to migrate all working age customers over to the new arrangements.

This feature originally appeared in the August edition of 24housing magazine.