About Turn on Universal Credit Payments is Coming
David Lawrenson of www.LettingFocus.com says that among the mandarins at the DWP, the penny may be finally dropping about Universal Credit Housing Benefit payments. Here, he proposes a more sensible alternative.
It’s Groundhog Day all over again. You may remember the famous film starring Bill Murray about a TV weatherman who was forced to relive a single day until he learned to be a nicer human being.
Well in 2008 the Department and Work and Pensions and the Councils made much effort to ensure that paying Local Housing Allowance (LHA) to the tenant as the normal default option (instead of to the landlord) would work. (The idea back then, as now, was to inculcate financial management and budgeting to people, so as to better prepare the out of work recipients for the salaried “manage your own budget” world of work).
We now know that the “demonstration projects” in 2007 and 2008 found that this concept did not work too well for many cases, and eventually a lot of “safeguards” (or as we call them “sticking plasters and exceptions”) were put in place enabling landlords to be paid direct either from the start of a claim or in the event of any arrears appearing.
Learning from the Past
But it seems the government, rather like a goldfish in a bowl, does not seem to learn from the past because the Coalition embarked on exactly the same course in 2012 for its soon-to-be-rolled out Universal Credit (UC). Again, the idea was that all payments, including the LHA Housing Benefit element within UC would be paid direct to the tenant in nearly all cases.
More trials were started in 2012 and 2013 and surprise, surprise, they found a high level of arrears once again (and more landlords who could not come up with clunky workarounds using, for example, the likes of local Credit Unions exiting this end of the market in droves).
Independent housing benefit advice expert, Bill Irvine, of HBAdvice.co.uk, writing in the “Property Investors News” magazine says that the truth is “that half of tenants originally identified [by the projects] refused to participate in the trials and in four out of six projects, rent arrears increased” – this despite much effort and resource being provided within the trials.
U Turn Coming
It now seems from reports we are getting and have seen that the government may finally do a similar turn around to the one they did four years ago, because it has made the following encouraging comments in a recent paper (House of Commons Work and Pensions Select Cttee Third Report of Session 2013-13):
1. UC payments will be switched to landlords where claimants are in arrears for fall into arrears
2. Full guidance will be provided on both the financial and vulnerability factors that will trigger direct payment to the landlord
3. We are clear that UC must be designed in a way that protects the financial position of landlords
Bill Irvine goes on to say that he has heard from senior civil servants that they now expect the number of “exceptions” (i.e. to pay landlords direct) will be around 30% – in other words, about the same as with the previous attempts at direct payments to tenants, once the penny dropped and safeguards were put in place by 2009.
We are still awaiting the details of how the “Safeguards Mark 2013” will work in practice.
Still, I guess it is good that the government listened, in the end. But why pursue a scheme and an idea that has been shown wanting in the past – and we wonder how much this aspect of the trials costed – when one could already guess what the result of the 2012/13 trials would be from what happened back in 2008.
A Pragmatic Alternative
So what should they have done?
No, not making direct payment to landlords dependent on those landlords issuing longer term tenancies. That’s a really silly idea (espoused by one of the smaller political parties) that is impossible to make work, not least because most mortgage lenders are still not allowing longer term tenancies. So landlords cannot do this even if they want to.
A far more sensible alternative would be to incentivise the scheme by making it financially worthwhile for the tenants to be paid direct.
In other words, you pay the tenant more if they agree to be paid direct but on the proviso that they don’t go into arrears on their rent payments. At the same time you could even possibly pay landlords a bit less where they end up being paid direct (as the risk to them is less also).
This would be a sensible pragmatic approach that has an additional built in incentive for the tenant recipients to manage their own budgets.
The Coalition, especially the part of it which is in the blue corner, is usually all for incentives to make things work – the more incentives the better. So, let’s see some in action on Universal Credit. Let’s see them adopt my idea.
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