Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.

A report into the financial implications of direct rent payments under the Universal Credit system concludes that direct payments will be a threat to housing association finances.

The report is the final output from the independent evaluation of the Direct Payment Demonstration Project (DPDP) conducted by the Centre for Regional Economic and Social research at Sheffield Hallam University in conjunction with Ipsos MORI and the University of Oxford.

Under Universal Credit, due to be phased-in between October 2013 and October 2017, working-age tenants will receive a single monthly payment directly from the Department for Work and Pensions (DWP). This will include their support for housing costs.

This represents a significant departure from the current arrangements, under which many social tenants have their Housing Benefit paid directly to their landlord and receive other benefits weekly or fortnightly.

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Pensioners will be excluded from Universal Credit and residents of ‘exempt’ supported housing will have their help with housing costs provided outside of UC. This means that both groups of tenants will be able to continue to have their Housing Benefit paid direct to their landlord.

Also, the DWP has acknowledged that there are some working-age people who will not be capable of managing a monthly payment, and for whom direct payments to the landlord will remain appropriate.

There will be a mechanism within UC to facilitate the payment of benefit direct to the landlord once someone is identified as vulnerable.

The system of direct payments has been operating in the private rented sector (PRS) for some years but so far local authorities and housing associations have been exempt. Despite prolonged protestations from private landlords over the years since the system was introduced in the private sector, the government have decided to roll this out to the social sector.

It now appears that social housing providers, like private landlords before them, are now concerned about the financial risks to them from the direct payment of rents to tenants.

This final report from the direct payment pilot schemes has called for “mitigating action to be taken” after the analysis showed that tenant arrears had risen over the period of the trials.

The report says that: “Overall, tenants who went onto direct payment in the DPDP paid 95.5% of all the rent owed, compared with a comparator sample (not on direct payment) who paid 99.1% of rent owed (a difference of 3.6 percentage points). However, this masks significant variation over time.”

It appears the problem is most pronounced in the early stages of the transition as tenants struggle to adjust to monthly payments from weekly or fortnightly, and the report continues: “Further analysis strongly suggests that the early arrears spike was not driven primarily by factors specific to the DPDP – e.g. the infancy of the policy and experimental nature of the DPDP programme – but is a pattern likely to repeat unless mitigating action is taken.”

“The ‘spike’ may be less pronounced going forward, reflecting the influence DPDP has had on UC design, but focused intervention and close monitoring of rent accounts may be needed, otherwise financial surpluses may be eroded, with consequences for housing associations’ capacity to build, and the impact of late/underpayment on cash flow could pose significant problems for small landlords.”

The report also predicts that the small increases in arrears experienced through the pilots, when scaled up to thousands of tenants under UC, will put large local authority landlords under pressure. Something they may find “particularly difficult to accommodate in the context of austerity measures and public sector funding cuts.”

These considerations, it said, pointed to “the benefit of a phased introduction of direct payment so that financial risk can be spread over time and the need for mitigating action during the transition to direct payment”.

This, coupled with the extra support needed for tenants, close monitoring of rent accounts, cautious assessments of tenants’ readiness for direct payment, on-going support assessment processes or other intervention will all put extra costs on cash strapped authorities. Add to this increased transaction and rent collection costs, IT system upgrades or renewals, and social landlords’ total costs will increase considerably.

However, there will be benefits. Some tenants in the DPDP programme stated a number of benefits of being on direct payment including better money management and some said it had made them more likely to look for work, hold down a job or increase their hours. During the trials the proportion of tenants with a bank account increased with some tenants also reporting that they had a better standing with their bank including improved credit ratings, all effects the concept of direct payments is aimed at achieving.

Commenting on the report’s findings, the Department for Work and Pensions said: “These projects show most claimants pay their rent on time and fears that the direct payment of housing benefit to social-sector tenants would cause mass arrears was unfounded.”

“They have helped shape the support we have put in place for claimants and landlords under universal credit – indeed that’s why we commissioned them, because paying housing benefit directly to claimants replicates the world of work and so makes it easier for people to take up a job offer.

“The Direct Payment Demonstration Projects tested various methods to switch from payment to the landlord, directly to tenants instead, and that informed Universal Credit. Under universal credit, if a claimant persistently underpays their rent and accrues arrears equivalent to one month’s rent, DWP will review the situation following notification from the landlord.

“At this point DWP can offer the claimant budgeting support and may decide to pay the UC housing element to the landlord. When arrears reach an equivalent of two months’ rent (the ‘trigger point’), an Alternative Payment Arrangement will be put in place to allow a managed payment to the landlord.

“Under universal credit, we are ensuring stronger protection is in place for both tenants and landlords against arrears – where payments for vulnerable people can be made directly to landlords – and we discuss budgeting support with all claimants.”

Read the full report here

Please Note: This Article is 4 years old. This increases the likelihood that some or all of it's content is now outdated.
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