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The direct payment guinea pigs

In October the government will begin paying benefit direct to social housing tenants as part of its great welfare experiment. Carl Brown examines the results of six pilot projects, which have been testing the new system since June, to find out what landlords can expect

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‘We are dealing with a group of people who have never in their lives ever paid monthly for anything. It is a bigger change than people anticipated,’ states Duncan Forbes, chief executive of 8,000-home Welsh housing association Bron Afon Community Housing.

Mr Forbes is speaking about his organisation’s role in testing direct payment of benefit to tenants. Bron Afon is running the Welsh direct payment demonstration project, one of six across Britain. The projects are using tenants as guinea pigs to test the impact of removing their current right to have their benefit paid to their social landlord directly.

The policy, which aims to encourage financial responsibility, is supported in principle by many in the housing sector. But there are concerns it could lead to rising arrears, hitting landlords’ income streams and creditworthiness when it is phased in nationally from October.

The year-long projects are looking at which groups should be exempt from receiving their benefits directly and what advice and support tenants are likely to need. Different landlords are testing different ‘triggers’, the point at which tenants who are in arrears have their payment switched back to the landlord.

The Department for Work and Pensions has, until very recently, refused to reveal much about the findings of these projects and has aggressively sought to prevent landlords spilling the beans. Just before Christmas, however, it did publish some sketchy initial findings from the projects.

Now, as projects pass the halfway stage, Inside Housing takes a peek inside the laboratories to find out whether the changes will be a breakthrough or a breakdown.

Initial findings

Most of the landlords involved told us there have been some tenants who chose not to respond to attempts to engage them in the project. Unlike the real thing, tenants can choose to not take part. Bron Afon says 204 of 1,174 claimants have not provided bank account details and some tenants have refused to take part altogether, while 24,000-home Family Mosaic says 12 per cent of 525 tenants on its scheme have not engaged.

Viv Davies, head of collections and credit control at Family Mosaic, says this is partly due to tenants not being aware of the forthcoming change to direct payment, due to poor communication from the DWP.

‘One of the tenants said: “It’s nothing to do with me, the state pays my rent”,’ he says.

In response, the DWP says it will do more to increase awareness of universal credit ahead of its launch in October when several benefits will be combined into one monthly payment, paid direct to claimants.

The most pressing question is to what degree arrears are rising among tenants who are taking part. This is tricky to assess as landlords are moving groups of tenants across to direct payment at different times.

Nevertheless, patterns are emerging. The DWP states rent collection rates across the projects are 92 per cent on average, but has refused to provide a regional breakdown.

There is emerging evidence, however, that the policy is playing out differently across the country.

In Wales, Mr Forbes describes his arrears as ‘very disappointing’. The 435 ‘lower risk’ tenants, who were deemed to be able to cope more easily and who moved across at the outset, initially had total arrears of £21,457. After six months the total for these tenants increased to between £83,000 and £116,000 depending on the time of month.

The organisation reported that the arrears of a high proportion of these tenants are increasing each month. A third of the 435 had higher arrears in December than November.

‘They are not managing to pay their rent, they are struggling with household expenses,’ Mr Forbes says.

He adds that Bron Afon has struggled to stem the increase in arrears despite putting more resources into rent collection.

Wakefield District Housing’s rent collection rate for 1,000 tenants is just 89 per cent and 100 notices seeking possession have been served to tenants on the project since it started, although the association stresses direct payment is not solely to blame. A spokesperson for the 32,000-home association says this is an increase in eviction proceedings, but would not specify by how much. WDH also estimates that direct payment will cost it an extra £8 million annually in bad debt provision and rent collection costs.

Edinburgh-based housing association Dunedin Canmore reports that its arrears have almost doubled to 6 per cent. Graeme Russell, housing services director, insists this will be brought down once all tenants are on direct payments and the association can focus on providing support.

Similarly, Family Mosaic experienced a rent collection rate of around 87 per cent for its first wave of tenants in the summer. The figure for these tenants is now 95 per cent and is increasing all the time as expected, says a cautiously optimistic Mr Davies.

Payment barriers

There is no doubt that, in the initial stages at least, arrears have increased - so what are the barriers to payment of rent?

A lack of access to banking services in rural areas is flagged up as a problem in the DWP findings for the Shropshire project.

The biggest problem, however, stems from changing a culture in which hard-pressed tenants are accustomed to budgeting in cash on a weekly basis. Landlords report that many tenants do not trust direct debits, as a payment going out at the wrong time could lead to bank charges.

‘The vast majority want some kind of physical transaction,’ Mr Russell says.

In response, Dunedin Canmore is offering a range of options including payment by telephone, cash card or standing order. It is also looking at using machines to allow staff to take rent payments on tenants’ doorsteps.

Mr Davies says 20 per cent of tenants on Family Mosaic’s project have preferred to pay by telephone, while just 40 per cent have set up direct debits.

Targeting resources

The lack of enthusiasm for direct debits is one factor contributing to a need to put more resources into rent collection to make direct payment work.

Bron Afon has five staff working with its 970 tenants on the pilot, a ratio of 194 tenants per staff member, compared with 1,333 tenants usually. Significantly, a spokesperson says: ‘We do not see that this level of support is likely to be temporary as we originally envisaged.’

Other landlords are attempting to do more with existing resources. Family Mosaic is trialling splitting its team of 25 income officers by having some focus solely on telephoning tenants and will test the use of text messaging, while Dunedin Canmore is switching staff from other customer service duties.

In addition, under universal credit it is not clear whether housing associations will be notified of a suspension of a tenant’s benefit in the event of a change of circumstances as is currently the case. This could lead to landlords not understanding the reason for missed rent payments.

The DWP says it is looking at how to ensure data can be shared, but Mr Davies says it will be better if tenants approach landlords to tell them of any potential problems, so risks can be managed.

‘We have to be better at negotiating with and positively influencing our tenants,’ he says. ‘We want to build a relationship where tenants phone us up to tell us if they are struggling to pay their rent so we can see whether we can sort something out.’

Mr Davies adds that he has been pleased by the level of responsibility demonstrated by tenants undertaking direct payment. In stark contrast to the tabloid image of benefit claimants as ‘feckless’, Mr Davies said some have taken measures to ensure payments go through, such as setting up separate bank accounts for benefit.

Exemptions

However, there is still debate about when to stop paying benefits directly to tenants and switch them back to the old system of paying their landlord if they are failing to pay their rent.

Switch back too early and the tenant does not learn financial responsibility, but allow arrears to build up too much and the landlord’s finances may be damaged. A trigger after four weeks of arrears would be ideal to minimise income risk, Mr Davies suggests.

Some landlords are also testing switchbacks in the event of underpayment of rent. The vast majority of switchbacks in both Wakefield and Wales have been due to underpayment, rather than non-payment. Bron Afon believes this could be an ‘essential safeguard’.

It is early days but the experiences of the projects to date suggest direct payment can work, with arrears kept down, but only if landlords pump significantly more resources into working with tenants.

This seems likely to lead to a new way of working, in which landlords interact with tenants more to offer support and budgeting advice, and check rent will be paid. This new intensified level of engagement could change the relationship between social landlords and their tenants forever.

The demonstration projects

Scotland - Dunedin Canmore and Edinburgh Council

  • 1,832 tenants invited to take part, with around 1,000 on scheme so far
  • payment switched back to landlord if tenant has not paid before 25th of the following month or if tenant fails to engage
  • 63 switchbacks so far

Southern England - Oxford Council and Greensquare Group

  • 2,000 tenants will eventually take part
  • 907 council tenants and 370 Greensquare tenants involved in initial phases
  • payment switched back if tenant has eight weeks of arrears
  • 67 switchbacks to date

West midlands - Shropshire Council, Bromford Group, Sanctuary and The Wrekin Housing Trust

  • 1,166 Shropshire Council tenants on the project, 562 Bromford tenants, 378 Sanctuary and 156 from The Wrekin Housing Trust
  • payment switched back after 12 weeks of arrears
  • 15 switchbacks to date

London - Southwark Council and Family Mosaic

  • 1,999 tenants identified to take part, but just 89 per cent (1,772) have responded
  • payment switched back after eight weeks of arrears, but after four weeks of arrears they receive support from an income officer. When payment is switched back the tenant is placed in a ‘probationary’ category, meaning officers help with management of finances. If the tenant pays rent for two months they then receive direct payment again.
  • 39 switchbacks so far

Wales - Torfaen Council, Bron Afon Community Housing and Charter Housing

  • 1,837 tenants to take part with 535 tenants involved in the first payments
  • payment switched back if tenant underpays by 15 per cent over 12 weeks,
  • 59 switchbacks so far

Northern England - Wakefield and District Housing and Wakefield Council

  • around 1,000 tenants have received direct payment of benefit
  • payments switched back if tenant has eight weeks of arrears, tenant makes no payment for eight weeks, or if tenant underpays by 15 per cent over 12 weeks
  • 97 switchbacks to date

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Charity warns direct payment costs will rise Charity warns direct payment costs will rise

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