Council stands to lose £70m in welfare shake-up

Published by 24publishing for 24dash.com in Housing and also in Communities, Local Government, Universal Credit

One of England’s largest local authorities stands to lose £70m over the next five years as its tenants feel the brunt of welfare cuts, writes Neil Merrick.

The bleak forecast is being made by Your Homes Newcastle (YHN), which manages stock on behalf of Newcastle Council.

About two thirds of the council’s 29,000 tenants receive housing benefit, which is to be gradually replaced by Universal Credit from October 2013. Meanwhile, 6,000 tenants that currently ‘under-occupy’ their home will lose benefit from next April through the so-called ‘bedroom tax’.

In a report this week to YHN’s board, director of tenancy services Neil Scott warned that the changes, including the payment of benefit to tenants rather than directly to the council, will have a major impact on council finances. Last year Newcastle received just over £69m in housing benefit - money that will be at risk in future if tenants fail to pay their rent in full.

“The Council and YHN are at risk of losing significant amounts of income,” said Scott. “Collectively the changes to the welfare system and subsequent risks to income will impact on the 30 year business plan which has been developed without the benefit of knowing what the full impact will be.”

Modelling by YHN shows the authority could potentially lose nearly £7m in 2013/14, including £3.9m because of the bedroom tax. Potential lost income rises to £10.6m in 2014/15, £14.2m the following year, and then £15.6m in 2016/17.

By 2017/18, the council could be as much as £22.8m worse off, with £4.4m lost due to the bedroom tax and £6.9m due to rent arrears once most tenants switch across to Universal Credit.

By then, the council estimates that it could also be losing £5.2m per year in service charges that are covered by housing benefit but not by Universal Credit. In addition, it expects to lose £5.9m in income from contracts for furniture that it currently holds with other housing providers and will almost certainly be cancelled.

Scott even warns that YHN’s reputation as a three-star arm’s length management organisation (ALMO) could be at risk. “Future new build could be affected if we cannot maintain the rental income stream which borrowing depends on,” he says.

Newcastle includes 10% of the most deprived neighbourhoods in the country. YHN has set up a welfare reform project to assist tenants struggling with the changes, but doubts that it will have a significant effect on the overall financial picture.