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MPs echo lender concerns on benefit reforms

News

Published: 10 April 2013 | Author: Bernard Clarke

Members of the House of Commons public accounts committee have echoed our concerns that government plans to pay housing benefit directly to tenants could jeopardise the capacity of lenders to fund the social housing sector. 

We believe that the government's apparent determination to pay benefit to tenants, instead of landlords, increases the risk of higher arrears, with potential effects on the income stream for social landlords. The consequences for housing association income could make lenders more reluctant to fund social housing, or lead them to charge higher rates to offset the greater risk.

This month, the Department of Work and Pensions (DWP) is due to launch pathfinder projects with local councils as part of its plans for the full roll-out of universal credit, including direct payment to tenants. It is pressing ahead with its plans despite widespread opposition from bodies in the sector, including local authorities, housing associations and tenant groups.

In its report, Managing the impact of housing benefit reform, the House of Commons public accounts committee warns of the risk that direct payments of benefit to tenants in social housing "could lead to an increase in rent arrears and evictions." It continues:

"Housing associations are increasing their bad debt provision and concerns are being expressed that homelessness could increase. The (DWP) should closely monitor the impact of the changes on social housing landlords and individual families, and respond quickly if there is an unintended adverse impact on the finances of social housing landlords or local authorities."

We agree.

The committee also criticises the DWP for:

  • Adopting a "wait and see" approach on the impact of the housing benefit reforms. The DWP argues that it cannot anticipate the effect of reforms because it cannot predict how claimants will respond to them. Instead, it plans to monitor rent arrears and change rules on direct payments to tenants if necessary. The committee said the DWP must monitor changes at a regional and local level and "be ready to act rapidly" to deal with rent arrears.
  • A low level of awareness among staff of the reforms and their consequences. The committee accepts that staff have been trying to explain to claimants how the benefit changes will affect them "but awareness is still far too low." The DWP needs a better understanding of how claimants in different circumstances could be affected, and should be explaining this face-to-face and in writing.
  • A lack of understanding of the impact of income from lodgers. Under universal credit, no bedroom will be allocated for a tenant, and any rental income received by the tenant will not be counted.  The committee says that the DWP must monitor the impact of this change, and that it plans to re-visit this issue later.
  • A lack of knowledge about how additional funding to local authorities will be used to help claimants adjust to the changes. It says the DWP should be monitoring this monthly, and working with local authorities to measure demand for funding locally and target the way resources are allocated.
  • Failing to understand all the administrative costs of implementing the changes. The committee says costs could be high for those authorities that cannot process changes automatically. The DWP has said it will provide funding for authorities as a result of the reforms. But it needs to work out costs as soon as possible and prioritise funding for those authorities that will struggle to meet them, the committee says.
  • Not having a clear enough understanding of potential policy conflicts. For example, higher rents would increase the housing benefit bill, but could provide more funding for new homes. The committee urged the DWP to work with devolved administrations to monitor the net effects of policy on house-building and benefit levels.

The public accounts committee’s views about the potential impact of reform of housing benefit reflect concerns already aired by a long list of critics, including money advisers, tenants, landlords, housing associations across the UK, and lenders. We believe the committee has highlighted a series of helpful recommendations for the DWP, and urge the department to act upon them.