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Full roll-out of Universal Credit could cost London boroughs £23m in arrears, report finds

Stock-owning London councils would lose £23m in rent arrears if everyone claiming housing benefit in the capital was moved to Universal Credit, new research has found.

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Stock-owning London councils would lose £23m in rent arrears if everyone claiming housing benefit in the capital was moved to Universal Credit, new research has found #ukhousing

“Should the government fail to act now, local authorities will be left to bear the brunt of a crisis in poverty and unemployment.” #ukhousing

Since the start of the COVID-19 pandemic, the number of people claiming Universal Credit across the UK has almost doubled #ukhousing

A report commissioned by Southwark Council on behalf of London Councils found that tenants in the capital accumulate an average of £240 in rent arrears in the 12 weeks after they first claim Universal Credit.

It calculated that the cost to councils of an individual being moved onto Universal Credit is £170 per person when the average arrears for Universal Credit claimants is compared with those on legacy benefits.

Prior to the coronavirus pandemic there were roughly 135,000 working-age council tenants in London claiming housing benefit.

The collective cost to local authority Housing Revenue Accounts of moving these tenants onto Universal Credit would therefore be £23m.

The report was carried out by thinktank The Smith Institute and the calculations were made by comparing the rent account data from 12 London boroughs which collectively own over 210,000 homes – roughly 13% of England’s council housing stock.

It found that tenants struggle most to pay their rent at the start of a new Universal Credit claim, with 31% of rents owed by claimants not paid in the first week despite the availability of advance payments.


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Alternative Payment Arrangements (APAs), which allow the housing element of Universal Credit to be paid directly to the landlord rather than claimants, were found to have a significant impact on limiting arrears.

For accounts with two months of arrears, those with APAs saw arrears rise by an average of £279, compared with a much larger average increase of £640 for those without APAs.

Since the start of the COVID-19 pandemic, the number of people claiming Universal Credit across the UK has almost doubled from 2.9 million in February to 5.3 million in May.

The report set out three main recommendations on how the Universal Credit system can be changed to reduce arrears, including a reduction of the five-week wait for payment imposed on new claimants.

It also recommended that social landlords increase their use of APAs and that direct payment to landlords becomes the default.

Muhammed Butt, executive member for welfare, empowerment and inclusion at London Councils, said: “The five-week wait is a serious flaw in Universal Credit’s design.

“This important research clearly shows that claiming Universal Credit is accompanied by a significant spike in rent arrears for the majority of council tenants.

“The five-week wait leads to low-income households piling up debts, which undermines Universal Credit’s effectiveness as a welfare support measure but also contributes to the serious finance pressures faced by councils and other social landlords.”

Victoria Mills, cabinet member for finance, performance and Brexit at Southwark Council, said: “Some of the temporary actions taken by the government to strengthen and improve Universal Credit are welcome but these need to become permanent.

“Should the government fail to act now, local authorities will be left to bear the brunt of a crisis in poverty and unemployment.”

A spokesperson for the Department for Work and Pensions said: “No one has to wait five weeks for payment and more than one million advances have been paid since mid-March to help those most vulnerable.

“We have also increased the standard allowance by up to £1,040 a year as part of a £9.3bn injection into the welfare system.

“It is wrong to attribute a rise in rent arrears solely to Universal Credit as many tenants moving onto the benefit may already be in financial difficulty.”

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