Landlord estimates arrears bill hit ahead of direct payments pilot

Published by Ross Macmillan for 24dash.com in Housing and also in Central Government, Communities, Local Government

GreenSquare - which manages over 10,000 homes - has been selected as one of only five housing associations to pilot the impacts of paying housing benefit directly to social tenants from 2013.

Announced by welfare reform minister Lord Freud (pictured), the 12-month pilots - which begin in June - will test how claimants can manage housing benefit monthly payments ahead of the introduction of Universal Credit.

GreenSquare's Oxford Citizens Housing Association will work in partnership with Oxford City Council for the pilot project.

Here, David Ashmore, GreenSquare chief executive, reveals the landlord's "best estimate" on the impact of direct payments on its arrears bill and considers what's ahead.

"Buy food. Heat the home. Buy the kids some clothes. Spend on something else. Or pay the rent? A real and constant dilemma for many people on benefits and low incomes. The Government’s proposals for welfare reform and  the payment of universal credit will give  people greater freedom and responsibility for managing their finances. In principle a right and proper move giving them more respect and control over their lives. But will it inevitably lead to greater pressure to manage tough choices and even tougher personal finances at a time when rents are rising and energy prices will soon surely resume their inexorable rise upwards ? And will the law of unintended consequences be alive and well as people get in serious debt and landlords’ rental streams suffer?

"These are very real concerns with  significant implications for landlords and tenants alike. So we are pleased to have the opportunity as one of five pilots to work with Government, Oxford City Council and residents to explore and test the implications of these fundamental changes. Whilst Oxford is not the first place to spring to mind when you think about deprivation, financial or otherwise, it’s a City of extremes – some of the most privileged in society live in close proximity to some of the least. There are areas of significant deprivation amongst the dreaming spires.

"When we submitted our ideas for the pilot there was no deal on the table in terms of underwriting any subsequent increase in arrears – but this is now a discussion point. How you work out the arrears attributable to direct payment and those  to reduced disposable incomes, is another matter but a key part of this work.

"We’ve done much to prepare for direct payments and welfare reform. Our best estimate of the impact of direct payments on our arrears bill alone is  an additional £1.5 million across the group, with many other costs that are not obvious at first. We think increases in costs to payment providers and transaction costs alone will go up by £50k a year. In total we estimate that the total financial impact of all welfare reforms, for both ourselves and our residents, could reach £3.7 million.

"This is why we think it’s important to be part of this pilot;to test what will actually happen; to inform the final policy decisions and achieve an evidence based conclusion that is in the best interests of residents and the social housing sector.

"What else have we been doing? We already do a lot of financial inclusion work directly with residents but also through supporting local Credit Unions and funding a debt advice worker at one of our local CABs – but things are stepping up several gears. There’s a huge additional data gathering exercise, reviewing existing policies to ensure they are flexible enough for anticipated outcomes of the reforms - for example, dealing with an anticipated increase in residents wanting to downsize, additional training for all front line staff in debt advice and money management. The list goes on.

"The other big question yet to be answered is what all this will do to the credit rating of the sector. Until recent years we’ve been a safe haven for the bankers. Of course, if the full extent of welfare reforms makes it through Parliament, including direct payments, it will no doubt put a dent in our collective profile. However it seems to me that the traditional funding routes are all but withering on the vine now and that as we continue to find ways to build new housing of all tenures, we are looking elsewhere for finance. For GreenSquare, some of this will come from within – from expanding our range of services, particularly our commercial arms and taking more control of our supply chain to generate surpluses to fund core activity. For the rest, we’re exploring other avenues. It’s time to stop reliance on our traditional funders.

"So – on the eve of the new pilot I’m feeling a degree of trepidation. A pragmatic and bold initiative? Time will tell but I am confident that we and our partners will make a useful and telling contribution to the Government’s plans and our sector’s preparations!"