A National Housing Federation advertisement opposing the ‘bedroom tax’ at Westminster underground station
Tsunami? Hurricane? Firestorm? Whatever metaphor you choose to describe the raft of welfare reforms due in 2013, major impacts on landlords are unavoidable. In the first in a series of exclusive features, Jules Birch examines some of the uncertainties surrounding government policy.
Welfare changes: what happens when?
- Bedroom tax
All social tenants of working age who are deemed to be under-occupying their home will lose part of their housing benefit. The DWP estimates 660,000 tenants in the UK will lose an average of £14 a week.
- Benefit cap
Working-age benefits will be capped at the level of the average earnings of a working family (£350 a week for a single adult and £500 a week for a couple or lone parent). Exemptions for those eligible for working tax credit, some disability benefits and war widow’s pensions. Anyone continuously employed for the previous 12 months will have a 39-week grace period before being capped. The DWP estimates that 56,000 households will be affected in 2013/14 with a median loss of £62 a week.
- Council tax benefit
The national scheme will be replaced by localised support with funding cut by 10 percent.
- Disability living allowance
Replaced by personal independence payment (PIP) with ‘objective assessments’ of all working-age claimants. The Government hopes to cut spending by 20 percent by 2017.
- CPI indexation
Local housing allowance for private tenants will be increased in line with the consumer prices index rather than market rents.
- Social fund
National scheme replaced by localised support.
- Universal Credit
The main start date for the Universal Credit in England, Scotland and Wales for new claims by people of working age. One monthly payment combining tax credits and benefits will go to a single member of the household. The housing element will only go direct to the landlord for tenants deemed ‘vulnerable’. In Northern Ireland the Universal Credit will be introduced from April 2014, payment will be fortnightly and may be split between two people in the household and the housing element will continue to go direct to the landlord.
We know what will happen when a series of cuts in individual benefits in April are followed by the start of the switch to Universal Credit in October. In most cases we also know how many people the Department for Work and Pensions (DWP) thinks will be affected and how much they will lose. But that is where the uncertainties begin.
Each of 2013’s changes would be hard enough to deal with on its own but the combined impact is much more unpredictable and compounded by four key factors.
First, estimates are only estimates. In the case of the benefit cap local authorities report some cases where families who will be exempt have been told they will be capped and others where families who will be capped have not yet been informed.
Second, we can’t predict how behaviour will change. How many tenants affected by the bedroom tax will be able to downsize or take in lodgers to mitigate their losses? How many people affected by the benefit cap will be able to get enough part-time working hours to qualify for working tax credit and evade the cap? What policies will landlords apply on rent arrears and possession actions – and how will the courts react? The DWP is commissioning independent monitoring and evaluation of the size criteria for two years from April 2013.
Third, the impact of the cap, in particular on temporary accommodation and supported housing, remains unclear. The Government has signalled that management costs will be stripped out before the cap is applied but rents will still be high. The DWP says it has increased the discretionary housing payment budget to £75 million in 2013/14 for people affected by the cap. The Autumn Statement said that housing payments to tenants in supported exempt accommodation will be exempted from the cap but clawed back £30 million in discretionary housing payments to pay for it.
Fourth, the sheer scale of the reforms means that tenants and landlords must take account of all of them, not just those that directly affect housing costs. Below inflation increases in benefits, cuts in council tax benefit, changes in disability living allowance, cuts in the social fund, new conditionality penalties for job seeker’s allowance and increases in the number of working hours needed to qualify for tax credits will all impact on tenants’ overall income.
That fourth factor will become even more important once Universal Credit starts in earnest from October. Once all benefits are paid in one monthly payment and housing costs are paid to the tenant rather than the landlord, any cut in income could have a direct impact on the tenant’s ability to pay the rent.
There are few precedents for such a huge reform. When housing benefit began 30 years ago it was introduced everywhere at once and poor planning and inaccurate forecasts of the number of claimants led to serious backlogs and delays. So there is some consolation to be drawn from the fact that Universal Credit is being phased in starting with new claimants.
Work also continues on six direct payment pilot projects. Interim findings will be published in the Spring and so lessons can potentially be learned in time to affect implementation. However, the pilots are only able to look at direct payment of housing benefit within the current system rather than under the changed conditions of the Universal Credit.
The DWP has tightly controlled information from the pilots but details that have leaked out so far suggest that 20 to 30 percent of tenants will struggle to pay their rent and that arrears have doubled in some cases despite intense support offered to tenants.
In England, Wales and Scotland ministers have promised that direct payment to the landlord can continue for ‘vulnerable’ households but the detailed criteria for this are still unknown. In November the Westminster work and pensions committee called for extra safeguards including an option to continue with direct payment.
However, the DWP says any exemptions will be time limited and will be combined with budgeting support to help claimants make the transition to monthly budgeting.
In the meantime, there are still uncertainties about exactly how the Universal Credit will work on the ground. Under the current system, landlords can simply inform their housing benefit department of any rent increase and see payments adjusted accordingly and they know which of their tenants are receiving housing benefit.
Landlords can make a reasoned judgement about serving any notice for rent arrears and the Ministry of Justice’s pre-action protocol says that possession action should not be taken against tenants because of arrears caused by delays in housing benefit.
The implications of uncertainty under Universal Credit could be serious. What will landlords do if they no longer have claims information? How will the courts react?
“We don’t know any of these things and they are really, really important details for landlords,” says Sam Lister, policy and practice officer at the Chartered Institute of Housing. The DWP says the demonstration projects will inform final plans and that discussions are ongoing with the Ministry of Justice.
Uncertainties also remain about the timetable for Universal Credit, the process of making a claim and the treatment of groups such as lone parents. Other specific concerns include:
- Exempt accommodation: The DWP has said that hostels and refuges will remain under housing benefit for the time being rather than go into the Universal Credit and have to deal with issues like direct payment. “I don’t think even the DWP knows the answer,” says Sam Lister. “It looks like the whole thing has been parked while they deal with other things.”
- Temporary accommodation: Local authority business plans assume that housing benefit will be paid direct and that therefore there will be no rent arrears. “What will be the impact when it is no longer paid direct?” says Lister. “Has it been thought through? Has there been an impact assessment? If local authorities find it doesn’t stack up they will be pulling out of temporary accommodation.”
- Service charges: This could be an issue in many different types of housing from charges for maintenance of common areas in supported housing to estate management charges made by landlords with large estates. Will Universal Credit cover the same costs as housing benefit? The DWP says it will but others are less certain.
“We know the broad outline but a huge number of things are still being tested,” says Sue Ramsden, policy leader at the National Housing Federation. “And even where we do have some certainty about the systems we don’t know how people will react to them.
“For example, the consequences of paying Universal Credit monthly into a single account per household is a huge unknown and it’s difficult to predict how different people will react. What we do know is that people are living on very low incomes and many have no, or very few, savings to deal with unexpected costs.”
Little wonder that concern is growing about the financial implications of welfare reform for many landlords – let alone their tenants. And that is just the reforms we already know about: the Autumn Statement paved the way for a whole new round of cuts after 2015.