Getting behind the rent

Lost in translation

New research has claimed an indisputable link between the introduction of Universal Credit and tenants getting behind in their rent. The implications for landlords and tenants alike are significant, but it can be fixed – if the Government is prepared to listen

By Mark Cantrell

This article first appeared in the August/September edition of Housing 

IRONICALLY, for a welfare benefit supposedly built to better support claimants into work and out of poverty, Universal Credit isn’t quite up to speed when it comes to dealing with some of the realities of life at the bottom of the labour market – and this has implications for landlords.

Rent arrears is a problem; not only is it a direct detriment to a landlord’s income stream, but dealing with the issue is itself a further drain on resources that could be deployed to other effect. What’s more, it can indicate hardships taking root in the communities where they operate for which there may be no immediate and direct solution to hand – just a further strain on resources.

Exasperation might prompt some to accuse tenants in rent arrears of being feckless – incompetent and irresponsible – when it comes to managing their money. For sure, personal mismanagement is a real and present factor in why some people fall behind with the rent, but it’s not the entire story. The reasons for arrears can be many and varied, but recently a further causal factor has been added to the mix, with the publication of research that claims an indisputable link between rent arrears and the introduction of Universal Credit.

Released in June 2016, the study was a joint endeavour by the National Federation of ALMOs (NFA) and the Association of Retained Council Housing (ARCH), which set out to examine the impact of Universal Credit on council tenants.

The headline findings proved quite startling, disconcerting even. It revealed that 79% of tenants receiving Universal Credit were in rent arrears. Moreover, only half of them had been in arrears before they were moved on to the new benefit. It doesn’t bode well, then, as the benefit continues to be rolled-out across the country.

“These survey findings continue to be extremely concerning for everyone involved in managing social housing in this country,” said John Bibby, chief executive of ARCH. “Despite the best efforts of ALMOs and local authorities to help prepare and support tenants claiming Universal Credit our research shows that one year on the proportion of claimants in rent arrears is still shockingly high. A review of current policy is imperative if we are to reduce unnecessary hardship within our communities.”

The research followed up a study conducted a year earlier, when the process of rolling Universal Credit out beyond its initial pilot zones was getting underway. This earlier study found that 89% of tenants on the new benefit were in arrears. So this new one, at least, has offered a little slice of positive news, even if the impact remains high. But the latest research not only set out to identify the extent of rent arrears that can be attributed to Universal Credit, it also wanted to know why the new benefit was tripping people up. In simple terms, you could say it boils down to design flaws.

“Although half did already have arrears, there is an element of people who went on Universal Credit quite early. Anecdotally we think it is possibly because these people are likely to be in and out of benefit and have had a change of circumstance,” said Chloe Fletcher, the NFA’s director of policy. “We know from housing officers and rent recovery officers that those types of people who have got quite different working arrangements – who are in and out of work, or on zero hours contracts – are often the people they find it difficult to collect [their] rent, because these people are managing on very low and changeable incomes, which makes it difficult to plan their financial affairs.”

The critical issue, the research found, is the length of time – six weeks – it takes to process claims and the fact that payments are made in arrears, whereas rent payments are expected in advance. For those leaving work, there’s a further seven-day period added to the length of time it takes before they receive Universal Credit. What’s more, it’s a week for which they receive no payment.

“These are people who are on very low incomes, who will not have savings, may have been in and out of work, on zero hours contracts,” said Fletcher. “People who lost their job, or their contract ended, may not have a significant wage cheque at the end, but they are expected to see themselves through that initial seven-day period. Given this is a safety net benefit and the vast majority of people claiming this are on very low incomes to start with, and are in that very insecure labour market, we don’t think that is reasonable.”

There is an element of forewarned is forearmed to this report. In disseminating their findings, the NFA and ARCH are providing housing associations an indication as to what they can expect once Universal Credit rolls up on their doorsteps. That is if it is not successfully reformed before then. That’s not necessarily an unrealistic hope. The research is also intended to provide the evidence needed to persuade ministers at the DWP that this flagship policy needs a little spit and polish if it is realise its aspirations.

Both NFA and ARCH are calling for the DWP to abandon the current seven-day waiting period. Furthermore, they want the Government to review the policy of monthly in arrears payments to ascertain if this is causing “unnecessary hardship” and longterm disadvantage to claimants. It also wants the processing of Universal Credit claims speeded up to three weeks, bringing it more in line with Housing Benefit.

None of these points are fundamental issues with the benefit, neither do they call into question its reasoning and aims. Furthermore, the DWP is not unaware of the problems. During a debate in the House of Lords on 13 July, the research cropped up in questions from peers put to welfare reform minister Lord Freud. In answering them, he announced he had commissioned a review to “help understand the true level and causes of these arrears”.

“I appreciate the concern with this. The reality is that there are a lot of factors at play and Universal Credit is not the sole issue. Many people are coming into Universal Credit with pre-existing arrears. Safeguards are in place for claimants, including advances, budgeting support and alternative payment arrangements. Research shows that over time claimants successfully reduce their arrears,” he said.

Lord Freud later added: “The essential fact is that landlords like their money paid in advance and all benefits systems pay in arrears, so we do not know how much of this is what the ALMOs call book arrears and how much is real arrears. We need to get to the bottom of that and we need to get to the bottom of what are the processing and payment systems issues. We need to understand what the existing arrears are.

“They are much higher than we expected—50%—and that is a frightening fact. We may be looking at a group going into [Universal Credit] which is unusual because it is moving up and down, and we need to understand and quantify those factors.”

Some may read into this Government prevarication; others may welcome it as an acknowledgement of a problem and so the first step towards a solution. Be that as it may, the wheels turn slowly for those landlords and tenants wrestling with the rent arrears triggered by Universal Credit. But maybe it is a start, all the same.

As it is, Universal Credit is not seen as the problem, per se; a few tweaks to its implementation and administration would, so the arguments go, make the benefit roll so much smoother for all concerned.

“The NFA supports the idea of Universal Credit,” said Fletcher. “Once it gets going and it’s done properly, in many ways it will be much better for the claimants to manage their money in future. So, whilst we believe in the principles of the new mechanism, there are minor things with the policy that we think need changing, which would make a big difference for claimants.”

One might say, then, that Universal Credit is a good idea, it has just kind of lost some its meaning in its translation into practice. A little reinterpretation will make its meaning clear. 

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Rental issue

The households most likely to have fallen into rent arrears included lone parents with dependent children, or those where the householder was unemployed, according to the latest English Housing Survey (EHS).

• Lone parents with dependent children were more likely than other types of household to be in arrears (24%) or have been so in the previous 12 months (27%). Single person households and couples without children were least likely
• Households where the person responsible for the tenancy is unemployed were more likely to be or have been in arrears at some point in the previous 12 months (27% and 29% respectively). Those where the head of the household was retired were least likely to be or have been in arrears
• Of those who did not have their rent paid by Housing Benefit, 364,000 households (14%) were in arrears. A further 348,000 households had fallen behind in their payments at some point during the previous 12 months. This had changed little since 2011-12, the EHS said
• The main reasons given for rent arrears were debts or other responsibilities (27%), reductions or delays in benefit payments (22%), and unemployment (21%)

(Source: English Housing Survey)

This article first appeared in the August/September 2016 print edition of Housing magazine. The article was subsequently republished on the HousingExcellence website, 4 October 2016