The current government have set out on a programme of welfare reform aimed at reducing the overall cost of benefits to the state. There is also a general implication that people on benefits should not be better off than those in work and some of the changes reflect this policy. The change to Universal Credit in 2013 is one part of this general programme of reforms and will combine several means-tested benefits, tax credits and housing benefit into one monthly payment paid direct to tenants.
The change will cost £4 billion to implement but is expected to save £2 billion a year in administrative costs. According to the government, a single, direct payment will encourage people to take responsibility for their finances, but Landlords Associations across the country have warned that it is likely to result in increased rental arrears and homelessness as some tenants fail to manage their budgets.
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. It is expected that a blanket switch will occur later (between April 2014 -2017). Concerns have been expressed in some quarters that the infrastructure required to get this change off the ground will not be in place within the proposed time frames but the government remain adamant that Universal Credit will roll out as expected.
At present the government has not disclosed how they plan to deal with the big question of ‘direct payment’ to landlords. All housing sectors, including charities such as Shelter and Social Care providers, are concerned about the possible implications of a change to pay tenants directly regardless of the circumstances. Due to concerted lobbying there have been some recent indications that provision may be made for the most vulnerable tenants to have payments made to the landlord (as they do at present) but, until the government reaches a final decision, nobody really knows what will happen.
- Benefits Cap
From April 2013 overall benefits will be capped at £350 per week for a single person and £500 per week for a couple, family or single mother. These reductions will be taken from the housing benefit portion of any entitlement first but it will not be applied to claimants working a minimum of 16 hrs a weekwho are still partially supported by benefits. In Milton Keynes this change will not affect a large number of people but it may pose a risk to a small number of landlords who currently house tenants with larger families (typically 3+ children). The Private Sector Housing and Housing Options team within the council are assessing the use of a short term increase in discretionary housing payments (DHP) to help ease the transition but budgets are limited. Landlords are being asked to help identify families who will potentially be affected so that support services can work pro-actively with them to plan for the change.
- 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 precise framework for this.
- 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 encourage older tenants to move to smaller homes, freeing up more property for those currently on waiting lists. Milton Keynes Council is currently running a survey on changes to their housing allocations policy which highlights proposals to offer incentives for tenants with spare rooms who take in lodgers. However, with an Article 4 directive in place on the entire borough which restricts the letting of properties to “sharers” there are unresolved questions surrounding this proposal.
- 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. 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.
- 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 which must at a minimum save 10% on the current bill. Government guidelines are sketchy and this will almost certainly result in different councils having different rules; the only certainty is that some people currently getting full relief on their council tax will be expected to pay a proportion in future. A concern for landlords is that some local councils are reported to be looking to remove the “empty and un-furnished” discount so that landlords will have to pay council tax when properties become empty.
- LHA rates
In April 2011 there was a significant reduction in LHA rates as the levels changed to be based on the 30th percentile of market rents rather than the 50th. 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 is aimed to apply further downward pressure on market rents but recent surveys by both the National Landlords Association and the Residential Landlords Association indicate that many landlords will simply refuse to house benefits claimants rather than lower rents. Certainly the change in LHA levels in 2011 has not obviously exerted downward pressure on rents; with both demand for property and rents in the private sector steadily increasing in most areas of the country.
(Piggy says “The current lack of clarity on how the government will deal with some of the specifics of the proposed welfare reforms is clearly a pressing matter to all private landlords that currently house or intend to keep housing benefits tenants. In this time of economic turmoil even those landlords who do not actively let to this market may be affected as previously working tenants are affected by pay cuts and redundancies. The potential for different areas to implement the changes differently as part of the localism act simply adds to the general confusion. All landlords, and any tenants claiming benefits, will be well advised to keep a close eye on future developments.”)