With councils now exposed to direct payments for the rent element of Universal Credit, some are now struggling with massive and mounting rent arrears, as in the case of Sandwell Council.
Direct payment of Housing Benefit was introduced for private landlords around 2004 under the 2004 Housing Act. This meant that the benefit was paid initially direct to the tenant, whose responsibility it then was to make sure the landlord was paid the correct amount of rent. The thinking behind the change was that it garners responsibility in money handling and budgeting in the tenant on welfare, nudging them away from the “nanny state” mentality.
Until the introduction of Universal Credit, and not all local authorities are affected as yet, councils have been in the envious position of having Housing Benefit paid directly to them, making their job of minimising debt much easier. Now, however, where UC is involved, because the payment to the individual tenant involves up to six benefits, councils have to rely on their welfare council tenants splitting off the rent element and paying back the rent.
Whereas private landlords large and small have had to learn to manage direct payments efficiently, or face going out of business, it seems that some councils are struggling to do this. According to the City of Wolverhampton Express & Star, Sandwell Council rent arrears hit £5.7m because its IT system is struggling with Universal Credit.
The Council outsources its rent arrears to Capita’s IT system, but it seems the system is outdated and incapable of correctly targeting debtors. Instead it is flagging up around 14,000 arrears cases every week, despite the fact that many of them are not in arrears and don’t need chasing up.
The result is that the nearly £6 million owing in rent to Sandwell Council is steadily increasing. This is because Council staff are wasting time manually managing the outdated IT Housing system, which they claim Capita has failed to improve despite the Council raising concerns since 2013.
Housing management at the Council have warned that the debt could rise by another £3.8 million if the system is not improved soon and changes in how payments are collected are not implemented.
The authority says it is now about to spend over £400,000 on new IT software, which it says it hopes will boost income by almost £700,000 in the first 12 months of operation by correctly identifying tenants most at risk of not paying.
Nigel Collumbell, a service manager for housing at the Council, told The Express & Star thatthechanges in welfare payments had seen staff workloads increase by 60 per cent.
“With the backdrop of welfare reform this is producing a really challenging environment to collect and prevent rent arrears.
“We have had a trend of increasing rent arrears over the last three years and there has been a real steep increase in the amount of rent owed to us by local authority tenants since the roll-out of Universal Credit in Sandwell since November 2018.
“In terms of some of those specific challenges, Universal Credit is far much at the top of the tree.
“As a consequence of the full roll-out, we have an additional £3.4 million rent debit we have to collect that would have paid directly onto (our) accounts by housing benefit.”