Welfare reform calendar 2011 – 2013
The Welfare Reform Bill is about to receive royal assent and will radically alter the benefits system. Now the government has beaten the Lords, Carl Brown explains why it is important that landlords prepare for the changes
‘For the first time ever we won’t be able to look tenants in the eye and say there is a government safety net that will help them out if things get bad enough,’ says Brian Johnson, chief executive of 20,000-home housing association Moat.
Mr Johnson is reflecting on the impact of the government’s controversial Welfare Reform Bill which, after a turbulent ride through the House of Lords, is set to receive royal assent this month.
The bill, which will simplify and cap benefits, is a radical piece of legislation which will break a long-standing assumption in British social security policy. ‘It is altering the principle that you provide a certain level of support for people, wherever they happen to live, and you don’t question their right to live there,’ explains Glen Bramley, professor of urban studies at Heriot-Watt University.
The government suffered defeats in the House of Lords in December and January, where peers feared measures in the bill would risk pushing thousands of people into poverty and homelessness.
But the coalition stuck firm and reversed the Lords’ changes last week, controversially using a parliamentary mechanism called financial privilege, usually used for money bills, to prevent further discussion by peers.
This means, barring any unlikely U-turns, the uncertainty around the bill is finally over. Landlords now know where they stand and have until April 2013, when most of the measures kick in, to plan how to deal with the effects of the legislation.
So what are the main changes and how should landlords be preparing for them?
Tax burden
One of the biggest concerns to landlords has been the government’s penalty for under-occupying social housing tenants, more commonly known as the ‘bedroom tax’.
The benefit cut creates a real risk of increased arrears for landlords, and leaves them to decide whether to expect tenants to take the hit, cover the shortfall themselves, or seek eviction.
Sam Lister, policy and practice officer at the Chartered Institute of Housing, warns landlords need to start to identify how many affected tenants they have and what the impact could be now. This, he explains, is because business plans based on increased rental income may need to be revised as rising arrears could reduce the expected increase in income.
‘Any landlord whose business plan is more than two years old really needs to rip it up and start again,’ he says.
The great divide
The tax is likely to affect different areas of the country in different ways. Some areas in the north of England have higher numbers of family homes and fewer smaller units for tenants to move in to - but the penalty in cash terms will be higher in high rent areas, such as London.
A group of 10 housing associations in Liverpool has calculated that the tax will hit 17,900 of their collective 67,000 households - more than a quarter of their tenants. Phil Gandy, chief executive of Symphony Housing Group, said: ‘We do not have the alternative accommodation to provide for them, we will have to make some allowances in our business plan.’
As a result, Mr Gandy fears making more money available to mitigate against rent arrears through funding additional rent collection services or by helping tenants to move could affect organisations’ ability to deliver other services.
Other landlords, such as Family Mosaic, in London, will help affected tenants cope but have ruled out meeting the shortfall if tenants can’t pay their rent and will evict those who cannot pay. ‘It would be subsidising the government and would be no different to increased arrears,’ says chief executive Brendan Sarsfield.
Affinity Sutton, in the south east, has set aside £510,000 for extra rent arrears staff and an awareness campaign.
Landlords fear the tax will encourage developers to build more small units for people to move into, when some areas of the country have a shortage of family-sized accommodation. The Consortium of Associations in the South East, a group of nine associations, calculates they would have to rebuild the equivalent of 7.5 per cent of their 272,000 homes as one-bedroom properties in order to house all under-occupying tenants ‘correctly’.
‘CASE members would need to do nothing but build one-bedroom properties for the next two years to make the policy work,’ a recent report by the consortium claims.
Stay or go?
Another problem is whether or not courts will be sympathetic to attempts by landlords to evict tenants for rent arrears if the tenant wants to move but there is no accommodation available.
Geeta Nanda, chief executive of 14,000-home Thames Valley Housing, says: ‘If you can’t move them [tenants] and they are not paying their rent, the decision will be made by the court and we don’t know what the outcome would be.’
The total benefit cap of £26,000 a year also presents challenges, although, at an estimated 67,000, far fewer households will be affected by it than the 670,000 households hit by the bedroom tax, with areas with high private rents, particularly central London, most affected.
Haringey Council says the measure will hit large families particularly hard. It calculates that a couple in Tottenham with five children would only be able to claim £46.20 towards their weekly rent of £350 as housing costs are squeezed to fit under the cap.
A report by Haringey seen exclusively by Inside Housing says: ‘The overall benefits cap will render most larger family-sized private rented housing in London unaffordable for workless households.’ The fear is that the cap, on top of local housing allowance restrictions being phased in for existing tenants on claim anniversary dates this year, will lead to councils having to spend more to house people in expensive temporary accommodation.
A key government concession on the policy revealed in the House of Commons last week was the announcement of an extra £130 million of discretionary housing payments to help families unable to move immediately for reasons of education or child protection. A spokesperson for the Department for Work and Pensions confirmed payments would be administered by councils.
Joanna Till, a solicitor at law firm Trowers & Hamlins, says there could be High Court challenges by individuals over councils’ decisions on discretionary payments. When it comes to social housing tenants, most landlords in London have deliberately kept their rents lower than 80 per cent of market rent on new properties and re-lets so the cap has less of a direct impact than for LHA tenants.
The universal’s here
Another critical area is the introduction of universal credit. The Welfare Reform Bill will replace a host of benefits, including housing benefit, with one overall universal credit, which will be administered by a huge IT programme using ‘real-time’ tax data to automatically calculate tenants’ entitlement.
The credit will be paid direct to tenants, leading to fears that social landlords’ income streams will be disrup-ted, affecting their creditworthiness. The government is testing ways of automatically switching payment back to landlords after a set period of arrears. Mark Henderson, chief executive of Home Group, warns that if the real-time part of the IT system, the bit which uses ‘live’ tax information, is not working there could be a delay in switching payment, which could mean arrears build up.
Controversial and ground-breaking, the coalition’s welfare reforms pose enormous challenges for the sector. Andy Tate, policy officer at the National Housing Federation, sums up: ‘The interaction of the changes with lettings policies, opportunities for tenants to move, adaptations, housing management, future development, financial and digital inclusion and welfare rights and benefits advice, will all need to be addressed.’
The time for debate is over, though. Now landlords need to get their heads around the changes. As Mr Tate concludes: ‘The next 12 months are going to be busy.’
Inside Housing is calling for fairer reforms of housing benefit through our What’s the Benefit? campaign.
Welfare reform: key measures
| When? | What is it? | How much will it save? | What does the government say? | What do critics say? | |
| UNDER-OCCUPATION PENALTY | April 2013 | Under-occupying social housing tenants of working age will be hit by a tax 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. | Around £490 million according to government estimates. | The policy will help to reduce housing benefit expenditure and encourage tenants to either seek work or move, freeing up social homes. | The measure is a ‘bedroom tax’ on 670,000 of the poorest households as the government’s savings estimate is based on the assumption that few tenants will move. |
| TOTAL BENEFITS CAP | April 2013 | A total cap on household benefits of £500 a week for couples and lone-parent households and £350 a week for single person households. Certain households, including those receiving working tax credit and war widows, are excluded. An estimated 67,000 people will lose an average of £83 a week. | The government estimates it will save £305 million by 2014/15 - although it has made £130 million available for discretionary payments to help people not able to move immediately, thereby reducing the savings. | The measure will save money but also bring fairness to the benefits system as workless households will not be able to receive more than the average working household receives in pay. | The cap’s one-size-fits-all nature means people in high rental areas will be disproportionately affected; the exclusion of child benefit from the cap’s calculation hits families with large numbers of children particularly hard. |
| UNIVERSAL CREDIT | Will be phased in gradually from October 2013 | Combines 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. | It will cost £4 billion to implement but is expected to save £2 billion a year in administrative costs, the government says. | The measure will simplify benefits and ensure claimants can see it always pays to be in work. A single, direct payment will encourage people to take responsibility for their finances. The measure will increase benefit entitlement for 2.8 million people, but reduce it for 2 million. | Claimants are not used to managing their benefit income and may not be able to budget effectively. Direct payment of benefit will hit social landlords’ income. The move to an IT-driven system may not work and could lead to a loss of face-to-face benefit advice. |
| LOCAL HOUSING ALLOWANCE CHANGES | Increases based on the consumer price index from April 2013 instead of the retail price index; local housing allowance caps from April 2011 for new tenants and phased in for existing tenants from 1 January this year; 30th percentile of rents from October 2011 | Rates for local housing allowance, paid to private tenants will be increased in line with the consumer price index measure of inflation instead of the higher retail price index. LHA has also been capped at between £250 and £400 according to property size and set using the bottom 30 per cent of rents instead of the median. | The combined changes will save £740 million by 2014/15 according to a Department for Work and Pensions impact assessment. | Overall cost of LHA must be controlled and the measure will also help to reduce private sector rents. | Thousands of families will have to move to less expensive areas; private landlords will simply refuse to let properties to benefit recipients. |
