Direct payments: are rent arrears set to rocket?
Published by Julien Tremblin for 24dash.com in Housing and also in Communities, Local Government
Direct payments: are rent arrears set to rocket
Nearly a decade ago, L&Q trialled paying housing benefit directly to social tenants with disastrous results. The group’s rent arrears nearly doubled.
The subsequent report ‘Where’s the Benefit?’ has become essential reading in recent times except, it seems, for the Government.
So with direct payments set to become a reality, can the housing sector make them work or will the imminent demonstration projects provide more questions than answers? Ross Macmillan reports.
Like most areas of Government policy, the plan to pay tenants their housing benefit directly – as part of the Universal Credit from 2013 – is not up for much debate. Just ask Lord Best.
If you were cynical, you might think plans to ‘demonstrate’ the measure for a year before it comes in is the Government’s attempt of meeting landlords ‘half way’ in addressing their concerns over rocketing arrears.
But the plain fact of it is – even if the ‘demonstration’ projects fail abysmally – direct payments to tenants are here to stay.
You might also be inclined to think that a project to pay tenants their £100-£200 housing benefit directly, and ask them to pay the landlord before spending it, isn’t exactly ‘demonstrating’ life under Universal Credit.
From 2013, tenants will receive most of their benefits directly – not just the housing component – in a single monthly payment, with claims administered centrally.
Then they’ll have to budget their rent out of everything else – jobseekers allowance, child tax credit, etc
So what exactly can we learn from the five demonstration projects of councils and housing associations who will be trialling direct housing benefit payments from June 2012?
“I’m pretty pleased it’s working with real landlords and councils because it could have been done in a hypothetical kind of way but it will enable us to look at real housing management systems, real resourcing and real advice centres,” says Abigail Davies, assistant director of policy & practice at the Chartered Institute of Housing (CIH).
“But this is still a locally administered benefit and in 2013 it won’t be – it will happen in some call centre in Warrington with people who don’t understand housing. That’s the concern – the demonstrations are not realistic enough but I’m not sure what else can be done.”
The inclusion of councils in the demonstrations is an intriguing call because housing benefit will be centrally administered from 2013 requiring tenants to apply to the Department for Work and Pensions (DWP) for their benefit and landlords to engage with the DWP over their tenants’ benefit claims.
Currently, most landlords have regular liaison meetings with council benefit departments and can iron out issues with tenants’ claims pretty rapidly. The relationship is widely recognised as being “the best it’s ever been”.
It’s understood the Government still envisages councils supporting people who have difficulty paying their rent even under Universal Credit.
A key area of the demonstrations will be the trialling of the so-called ‘trigger’, where, having fallen into rent arrears, the landlord can request the tenant’s housing benefit is directed straight to them.
During the 12-month demonstrations – which will test different ‘trigger’ frequencies e.g. four, eight weeks, etc – this request will presumably be handled by councils, however, from 2013 landlords’ requests will have to be made centrally to DWP.
But councils also have their own rent collection worries and the reform perhaps represents a bigger sea-change for their tenants rather than housing association tenants – as they have never had the choice of having their benefit paid directly to them.
Each of the demonstrations will trial direct benefit payments to 2,000 tenants.
Ian Wingfield, cabinet member for housing at Southwark Council – which is teaming up with Family Mosaic on the London demonstration project – says 50 percent of its tenants are on benefits.
He says 200 Southwark council residents are involved in the demonstration.
“We know it’s going to have a major impact on their lives,” says Wingfield. “That’s why we want to put our toe in the water with this project.”
Wingfield also hints at favouring the administration of housing benefit locally. Last year Southwark took its revenues and benefits function back in-house after it had been farmed out to business process firm Liberata. “It’s more cost-effective and makes practical sense when these things are kept under the same organisation,” says Wingfield. “That’s, there is better liaison on benefit take-up and rent collection.”
The CIH has called on the Government to allow councils to retain the administration of housing benefit. “It’s good to have [councils] involved,” says Davies. “They’ve been doing this with the private rented sector for a while. I’m hoping by watching what happens in the demonstrations we can say ‘look you really need that expertise’.”
Despite the limitations of the demonstrations, there was no shortage of interest from organisations – except in Scotland, where at the time of going to press the Department for Work and Pensions (DWP) was still to find a council or housing associations north of the border to take part. They’re fiercely against direct payments to tenants and view the demonstrations as a “distraction”.
Aside from that, around 70 expressions of interest were received by the DWP. “The organisations that have been chosen are pretty forward-looking, solid organisations,” say Davies, presumably chosen on that basis – that they’re going to pull out all the stops to make it work.
GreenSquare – which manages over 10,000 homes – is working with Oxford City Council on the Southern England demonstration.
Chief executive David Ashmore says the group has 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 £50,000 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.”
The chance to be a step ahead of the game is also echoed by Kevin Dodd, chief executive of Wakefield and District Housing (WDH) – who is teaming up with Wakefield District Council on the Northern England demonstration.
WDH manages 31,000 properties on behalf of nearly 60,000 tenants. Nearly two thirds of its tenants receive housing benefit, and many will receive other benefits such as child benefit, tax credit and council tax credit.
“Between October 2013 and 2017, nearly 29,000 housing benefit claimants in Wakefield will be affected by the introduction of Universal Credit,” says Dodd.
“Around 11,600 of these people will also be affected by direct payments. Of these, a further 5,500 people could also have their benefit reduced because their home is considered too big for their needs.
"Considering all of the above, WDH needs to use its experience to shape and influence the Government’s final policy, ensuring it meets the needs of local people.”
The other big question, yet to be answered, is what the reforms will do to the credit rating of the sector. Housing associations have traditionally been a safe haven for bankers – however all the welfare reforms, coupled together with feared arrears hikes from direct payments – will no doubt put a dent in their collective profile.
“Arrears have gradually been coming down over the last 20 years,” says the CIH’s Sam Lister. “There was originally a benchmark of two to four per cent.”
However, he cites the now-famous L&Q research into direct payments – piloted about 10 years ago in Lambeth on behalf of the Housing Corporation. On that project the group's arrears went up from 3.6 percent to about 7.5 percent. L&Q said that if that scenario was applied across the whole of its rent roll it would add £8m arrears to the group.
“On L&Q’s study there weren’t any exceptions”, says Lister. “It applied across the board. They tested it whole scale.”
The Government has insisted that pensioners and vulnerable tenants will continue to see their housing benefit paid directly to their landlord.
The hope is councils – who have the experience of dealing with Local Housing Allowance claims – will develop systems to “pick people up who might be vulnerable” which they can then share with the DWP, says Lister, a CIH policy and practice officer.
The issue of defining who is and who isn’t ‘vulnerable’ is something the demonstrations will have to address, says Kevin Dodd.
"We are also concerned that the traditional definition of a ‘vulnerable person’ may leave out some people in our communities who are financially vulnerable, so we will be working with the DWP to clarify this position.
"In the meantime, WDH and Wakefield Council will be working closely to ensure we develop the appropriate processes and safeguards so that people are not ‘set up to fail’.”
Felicity Ridgway, part of the DWP's Universal Credit Programme, said last November the department was weighing up a decision to either define it in "black and white terms" so it could be automated during the claim, or whether it would leave it to “human discretion” - i.e. for social landlords or the Government to apply.
So how are landlords preparing for the demonstrations?
“I think the Government recognises there is not a one-size fits all approach,” says Lister. “Rule out what doesn’t work then you’re left with a menu of systems that work in different areas.”
The Government appears to have put a lot of faith – and cash – into the credit union movement so it can rise to the challenge of Universal Credit.
Concerns landlords have with unions, however, is that they are hit and miss. Some are professionally run, rigorous and act (in a good way) like a bank. Others are run purely by volunteers and provide the minimum service.
New powers passed in January, however, allow landlords to work with any credit union in the country regardless of proximity. Some landlords are also investing money to boost the unions in their local area to ensure they provide accounts for tenants to have benefits paid in and direct debits taken out.
Some are also exploring ‘benefit direct accounts’ – which some unions provide for private landlords to help safeguard Local Housing Allowance. This is where the housing element can be paid to the landlord before it’s withdrawn by the tenant.
It’s understood the Wales pilot featuring Torfaen Borough County Council and Bron Afon Community Housing is one of the projects that will specifically focus on credit unions as it already has them established in their area. Others understood to be “beefing up” their unions include Wakefield and Southwark.
“Some of the [demonstration] projects are specifically going to look at credit unions because they have got them up and running already,” says Lister. “However, some have had credit unions which haven’t worked very well.”
Others see credit union involvement on the budgeting side – encouraging financial inclusion and supporting their customers in budgeting.
Then there are established payment solution firms like allpay – which is already the bill payment provider for five of the landlords named for the demonstrations.
It’s been in discussions with the DWP – and organised two roundtable events with landlords last year. It’s in the process of developing easy-to-manage bank accounts that help maintain ring-fenced essential payments safeguarding the landlords’ rental income.
It also has prepaid card options – allowing benefit money to be loaded on a card which would only let the tenant spend the housing benefit money with the landlord.
Another company working in the area of prepaid cards is business services firm Grass Roots, which is developing an incentive scheme that would see the landlord accumulate extra cash to invest how it sees fit.
However, it’s understood the Government is not as keen on the idea of prepaid cards as it’s not giving tenants true budgeting responsibility.
And here-in lies the drive behind the plan - the political will to derail a system the sector regards as working fine in favour of shifting “responsibility” to the tenant.
It’s true that under the current system some social tenants believe they don’t pay rent – that their housing is free. The shake-up would no doubt readdress that perception.
Most in the sector see the move as ideological as they can’t work out any cost savings from the new system. “It’s weirdly ideological in a way,” says one housing expert, “because if I am your average social tenant who hasn’t had a great deal experience of work and I manage to get a job, it’s going to be weekly pay. People who work at that bottom end of the jobs market don’t get monthly pay checks. The reform is driven by a wrong understanding of the world of work.”
Abigail Davies thinks direct payments will cost more – aside from extra staff resourcing in areas like financial inclusion and rent collection.
“Currently the council makes one payment to the landlord and the landlord then sorts it all out. Whereas now they’re going to have to make, what, 20,000 payments to one landlord – how’s that cheaper? It’s not. In terms of simple transaction costs, I don’t see how they’re going to save.”
However, she does envisage some benefits under the new system – which will be managed online from 2013.
“In theory if you could give a landlord permission to look at claim online, then they could see what documents were missing and what had been requested and could be proactive about making sure the claim went through,” she says. “That would speed up what happens now e.g. ringing up council and sorting it.”
Where is the benefit – ‘short term costs are huge’
The L&Q pilot in 2002 took place over 18 months and involved a total of 700 households. Speaking to 24housing magazine on the announcement of Universal Credit, L&Q's finance director Waqar Ahmed stressed that associations would need to bolster services providing budgeting support to tenants if direct payments to tenants went ahead. He said that there was “value” to the single universal credit and that it would allow tenants to fully appreciate the value of their property but warned the set-up costs for government and housing associations could be huge.
He said: "Housing associations are not geared to collect 100 percent of the rent from every house they manage and look after so initially there will be some increase in arrears, some capital costs that need to be set up and there is likely to be higher evictions. It’s a long-term gain but the short terms costs are huge.”
Insight: What the landlords say...
- Family Mosaic (London) “It will help us to assess the provision of advice and assistance needed for our tenants to manage their finances,” Vivian Davies, head of collections and credit control
- GreenSquare Group (Southern England) “...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!" David Ashmore, chief executive
- Bromford Group (West Midlands) “...with customers living in very different circumstances and sometimes living in remote rural locations it’s about delivering great customer service at the right place, the right time and often in customers’ homes,” Sue Murray, director of housing
- Sanctuary Housing (West Midlands) “Between now and when the project starts in June, we will be working with our partners, including the Citizens Advice Bureau, and we look forward to feeding our findings back to the Government's independent evaluation team,” Simon Clark, director for housing and communities
- Wakefield and District Housing (Northern England) “Significant pressure will be placed on housing associations and local authorities alike to ensure that the appropriate support is in place for those receiving Direct Payments. If not, the system could be flawed from the outset and the risks could be great,” Kevin Dodd, chief executive
- Torfaen Borough County Council (Wales) “We are keen to participate in this project in order to influence policy positively and ensure that the best interests of our residents are secured,” Council statement