UNIVERSAL CREDIT: A CLOUD OF UNCERTAINTY? WHAT WE KNOW SO FAR:
Over the last couple of years we have tried to keep our landlords upto date with the on-going changes to housing benefits.
In late 2010 we started to publish articles about the pending reductions in LHA that were to take effect from April 2011 and in late 2011 we published further articles about additional changes that affected under 35’s from January 2012 onwards. As a company we try to attend as many local council/private landlord association meetings as possible in order to stay ahead of pending changes and pass our knowledge onto our clients.
Last week I attended a meeting for private landlords at the Gateshead Civic Centre and in this article I will pass on information we discussed including further pending changes to the benefits system and the forthcoming introduction of Universal Credit. All of these changes are still being finalised and so we will continue to keep you informed as more information is provided by governmental sources.
Pending changes: What does the government have in store?
Since the current government were re-elected in 2010 they have set out on a programme of welfare reform with specific goals centred on getting people back into work, making people more responsible for their own budgets and most importantly reducing the overall welfare state. The next wave of changes are aimed at these end goals.
A general undertone of the reforms is that nobody on benefits should have a higher income than someone who works (based on the current UK average salary of £26,000). As a result, from April 2013 overall benefits will be capped at £350 per week for a single person and £500 per week for a couple or single mother. These reductions will be taken from housing benefit and will only affect working age tenants claiming income based benefits (Not DLA claimants or the elderly).
Although this change will not affect a large proportion of people claiming benefits (Approximately 40 families in the Gateshead Borough Council Area – Typically 5+ children) it may pose a risk to a small number of landlords who currently house these tenants, especially once Universal Credit is introduced and families that are used to a higher income suddenly struggle to budget appropriately.
Apparently there will be a short term increase in discretionary housing payments (DHP) to help ease the transition however budgets are limited.
Non Dependent Deductions
At present tenants claiming housing benefits see a set reduction in their entitlement for non-dependents (any adult in or out of work living within the house-hold) based on the income that the non-dependent receives. From April 2013 these deductions are set to increase but as yet we do not know the framework for these increases or how they will impact upon tenants.
Bedroom Cap (Council Tenants)
Again, from April 2013, social housing tenants of working age will be hit by a reduction of up to 14 per cent of their housing credit if they have one spare room and up to 25 per cent for two spare rooms. The aim of the policy is to reduce housing benefit expenditure and encourage tenants to either seek work or move, freeing up social homes. However, in reality this is likely to lead to an increase in council tenants moving to the private rented sector which may not choose to accommodate them due to the potential risk and uncertainty from Universal Credit.
Compared to the ‘befits cap’ this change affects a much higher proportion of people (Approximately 3,000 people in the Gateshead Borough Council Area).
Job Centre plus – Social Fund
At present benefit tenants can apply for a crisis loan or rent in advance to help cover the cost of moving through their local Job Centre plus. Additional funding is also available to people in care who are trying to move back into the community. This service/facility through the Job Centre plus is to be abolished at some point in the near future (probably at a date which ties in with the introduction of Universal Credit). From this point the responsibility will be passed to local councils, however, the funding will be significantly reduced and councils will have to decide individually who they will and will not help. Overall, this will lead to much less people being helped.
Council Tax Benefits
Changes to council tax benefits will run in line with the introduction of Universal Credit. In short the benefit will be scrapped completely and councils will have to individually design their own replacement schemes. At present local councils claim back funds from central government for all lost revenue as a result of awarding council tax benefit. Under the new rules this pot will be capped (approximately 10% less) meaning that the same level of support simply cannot be offered.
A major concern for landlords is that local councils are looking to remove the “empty and un-furnished” discount so that landlords will have to pay council tax when properties become empty.
In the past LHA rates have been calculated based on percentiles of localised average rents. In April 2011 we saw a significant reduction in these rates as the new rates were based on the 30th percentile rather than the 50th that was used prior to this date. Subsequently we saw slight fluctuations following the change but recently the rates have remained stagnant. From April 2013 LHA rates will no longer be calculated in this way and will instead be based on the consumer price index or 30th percentile, whichever one is lowest. This will apply further downward pressure on market rents.
Universal Credit – What, when, why?
Universal Credit will combine several means-tested benefits, tax credits and housing benefit into one monthly payment paid direct to tenants, which will be administered by a giant IT system using real-time tax information to automatically update claimants’ entitlements.
The change will cost £4 billion to implement but is expected to save £2 billion a year in administrative costs. The measure will simplify benefits and ensure claimants see more clearly what they receive compared to working. According to the government, a single, direct payment will encourage people to take responsibility for their finances, but in reality as I’m sure many will agree, it is likely to result in increased rental arrears to private sector landlords as some tenants fail to manage their budgets.
The obvious problem with Universal Credit is that a section of a tenants benefit will no longer be paid to them to specifically cover their rent. Their benefits will come as one lump sum which is designed to cover their overall living costs and it is then up to them to to budget and pay for their outgoings accordingly. My fear is that in many cases the temptation of having a large sum of money coming in once a month will increase irresponsibility and rental arrears which could result in big problems for landlords.
Similarly to some of the other pending changes, Universal Credit will not affect Disability Living Allowance (DLA) claimants; however everyone else of working age will be affected (i.e. claimants of Income Support, Employment Support Allowance, and Housing Benefit etc). Universal Credit will be paid monthly in arrears on a no pro-rata basis (i.e. if a claim is made of the 16th of the month the tenant will always be paid on the 16th of the month).
Universal credit will be phased in gradually from October 2013. The first wave of applicants to be affected by the change will be those making a new claim for benefits or those that have a change of circumstances resulting in a reassessment of their benefits. Although it has not been explained fully at this point it is expected that a blanket switch will then occur later (between April 2014 -2017) on a geographical basis (Either based regionally or on council boroughs). At present the government is running 10 pilot schemes in various locations with different demographics. It has been suggested in some recent articles in the press that the infrastructure required to get this change off the ground within the proposed time frames will not be in place by October 2013, however, the government remain adamant that Universal Credit will roll out as expected and by 2017 will have been rolled out across the board.
Loss of safeguards to ensure direct payment?
At present the government has not disclosed if or how they plan to deal with the big question of ‘direct payment’ to landlords, however, the fundamental undertone to the changes is that they want to make people more responsible for their own income/budget meaning that they are aiming to pay tenants directly regardless of the circumstances. We have been informed at this point that there may be a provision based on debt or bad money management as there is at present but until the government reaches a final decision on this we really don’t know what will happen. Hopefully some safeguards will remain in one form or another but there is a chance that they may not transfer across at all which needless to say would be a disaster for landlords.
The lack of clarity on how the government will deal with this issue is clearly the most pressing matter to all private landlords that currently house or intend to keep housing benefits tenants. Although the current portrayal of Universal Credit and its unknown aspects are generally negative, one thing I would say is that as a whole the private sector has always been able to adapt to changes in the past. At NGU Homelettings we have always been able to evolve our processes to stay ahead and although at present there is a lot still to be unearthed about the pending changes I am confident that this period will be no different.
Over the coming months we will continue to push for the answers we and many others are looking for so we can ensure we are prepared. As soon as we have further news we will pass it on to you.
Chris Fitzakerley and Aaron Phelan