Lord Freud refuses to budge on direct payments to tenants

Published by 24publishing for 24dash.com in Housing and also in Central Government, Local Government

An amendment which would have given tenants the choice to have their housing benefit paid directly to their landlord under Universal Credit was withdrawn last night after welfare reform minister Lord Freud reassured peers that he is "determined" not to see the financial position of housing associations undermined.

From 2013, housing benefit will be rolled into a Universal Credit - which will replace six income-related benefits - which the government wants to pay direct to tenants in a monthly payment.

The amendment to the Welfare Reform Bill was tabled by crossbench peer Lord Best - who cited research by consultancy Policis who found that 93% of tenants in the social rented sector wanted housing benefit to be paid direct to their landlord.

He also drew attention to warnings from both the National Housing Federation and the Council of Mortgage Lenders (CML) - regarding the impact on borrowing costs of landlords and the implications for "existing loan agreements".

Citing CML research, Lord Best warned: "Losing those preferential rates at £500 million per annum, added to the direct costs of arrears and extra administration of £420 million per annum, gets us to nearly £1 billion a year for this policy."

Lord Freud however refused to budge and repeated his commitment to see the "whole experience of claiming benefits as close as possible to the experience of receiving a wage or salary".

He said he was not convinced by the argument that "so-called tenant choice is genuine choice". He said: "Effective choice exists only when the balance of power is equal between tenants and landlords. When power is in the hands of landlords, tenant choice becomes landlord choice, and that, of course, leads to the situation we have at the moment where 95 per cent of claimants reputedly choose to have their housing benefit paid direct to the landlord."

He said: "I assure noble Lords that we have been in constant and regular dialogue with the Department for Communities and Local Government to make sure that we are proceeding along a path that does not undermine the financial stability of the housing sector."

He said the six demonstration projects, announced in September at the National Housing Federation conference, will help "gather the information needed to get the final design of any safeguards in universal credit right".

The pilots - which will take place in each region of the country and in Scotland - will test out a 'trigger' that will see direct payments to tenants switched if the tenant falls into arrears, mirroring the private rented sector.

He said there had been 40 expressions of interests for the demonstration projects - which the Government wants to launch in June.

He added: "We will trial things such as escrow accounts, detailed budgeting support and so on, how one would switch payments and arrears and how one would recover those arrears. We would look at how one protects the interests of both tenant and landlord so that we do not have a question over the security of the cash flow of the housing associations."

He repeated previously announced research claiming that the switch to direct payments will be completely new for around 20% of tenants - and that vulnerable people, around 10% of social sector tenants, will continue to have their rent paid direct to the landlord. "This can include those with significant debts," he said.

Although, pressed by crossbencher Lady Meacher on how vulnerable people would be selected and identified, he said: "Clearly, we will develop procedures to identify these people and take steps to carry on paying the landlords."

Lord Best queried the 10% of vulnerable people clasification. He said: "Bearing in mind future financial pressures on tenants and the difficulties of organising your finances with the complexities of things such as direct debits, the estimate that it will apply to 10% of all of those in social housing sounds remarkably low."

Labour peer Baroness Hollis of Heigham asked the minister if he was prepared to introduce a subsequent clause at a later stage which would give priority on direct debits to a rent payment so that the bank, overdrafts, other creditors or whatever should not take a prior slice of the money?

Lord Freud said: "That is exactly the structure we need, but how does one find a way? It may be an escrow account in which that payment is protected. That is what we are going to develop."

He added: "I have made a very firm statement here about being determined not to see the financial position of housing associations undermined. That is a very firm statement of intent. I think that is probably enough without further elaboration."

Withdrawing the amendment, Lord Best said: "Let us not prejudge the outcome that the Minister and his colleagues are right on this one and that this rather large body of opinion on the other side is wrong. Let us allow those pilot schemes to explore the issues. It is not in the Bill so the opportunity exists for Ministers to withdraw this measure which could prove calamitous for a lot of people. I beg leave to withdraw."