HC 576 Progress towards the implementation of Universal Credit

Written evidence submitted by the National Landlords Association

Background:

1. The National Landlords Association (NLA) exists to protect and promote the interests of private residential landlords.

2. With more than 20,000 individual landlords from around the United Kingdom and over 100 local authority associates, it provides a comprehensive range of benefits and services to its members and strives to raise standards in the private-rented sector.

3. The NLA seeks a fair legislative and regulatory environment for the private-rented sector while aiming to ensure that landlords are aware of their statutory rights and responsibilities.

NLA evidence summary:

4. The NLA contends that the implementation of Universal Credit, as intended by the draft regulations currently under consideration by the Social Security Advisory Committee,  has the potential to have a significant destabilising, and subsequently detrimental, impact on the private rented sector.

5. Specifically, the Association is concerned about the lack of distinct regulation:

(i) defining the mechanism of payment to another person on the claimant’s behalf;

(ii) the factors which will be used to determine financial and vulnerability risk factors and;

(iii) the degree of uncertainty presented by the replacement of swathes of regulation with guidance.

Payments to another person on the claimant’s behalf:

6. Clause 52 (1) of The Universal Credit, Personal Independence Payment and Working-age Benefits (Claims and Payments) Regulations 2012 states that the Secretary of State may direct that Universal Credit may be paid wholly, or in part, to another legal person if such a direction is likely to protect the interests of the claimant.

7. Clause 52 (2) goes on to confirm that "(1) includes provision for the making of payments to a person to discharge, in whole or part, a liability of the claimant to a landlord in respect of housing costs which are included in the claimant’s award under Schedule (HoS4) (support for renters) of the Universal Credit Regulations 2012."

8. The NLA has long-maintained that it is essential to provide a mechanism for the direct payment of the housing cost component of any relevant future benefit to the provider of said housing. The provision of housing is a relatively high risk venture, often dependent on the stability of income streams in order to meet additional financial commitments connected to the provision of accommodation. In the most basic sense, it can be very challenging to obtain sustainable financial products in respect of rental housing, particularly those variants which do not prohibit letting to tenants in receipt of housing support.

9. Without recourse to establishing direct payment to the landlord where necessary, providers of commercial finance are likely to determine that the risk of lending is too high resulting in high costs to the borrower or a reduction in availability. This reduced availability and increased potential cost of provision will have a detrimental impact downstream on tenants.

10. The NLA notes with some concern that Schedule 4 of The Universal Credit, Personal Independence Payment and Working-age Benefits (Decisions and Appeals) regulations 2012 expressly excludes regulation CP55 (decision as to paying another person on the beneficiary’s behalf) from the right to appeal. Given the opportunity for human error and miscellaneous misunderstanding it is imperative that a claimant, or other affected person, is able to appeal a decision they believe incorrect.

11. Further to the issue of arranging payment of relevant benefits and credits to a third party in the event of an agreed exception, private landlords have expressed some concern that measures provided within Section 96(2) of the Housing Benefit Regulations 2006 do not appear to have been replicated.

12. Regulation 96(2) states:

…..a first payment of a rent allowance following the making of a decision on a claim or a supersession under paragraph 4 of Schedule 7 to the Child Support, Pensions and Social Security Act 2000(2) may be made, in whole or in part, by sending to the claimant an instrument of payment payable to that landlord.

Thereby ensuring that a private landlord is made aware of the acceptance and commencement of a new claim by means of the first payment being issued to the tenant in the name of the landlord. This system is not intended to remove any of the independence granted by direct payment to the tenant, but ensures that the provider of housing in each instance is informed of the start of the claim, the level of payment and receives the initial rental instalment.

13. To date the NLA has seen no evidence of similar provisions with the Universal Credit Regulations and believes that a failure to provide a mechanism to engage with the provider of accommodation from the outset and to ensure that they are aware of the status of a claim could have detrimental consequences for landlords and tenants trying to secure new tenancies.

Payment to the housing provider in the event of arrears:

14. In particular, it is essential that landlords, both social and private sector, are able to mitigate the risk of non-payment of rent, where the housing cost is wholly or partly met by the state, through means of a direct payment trigger mechanism. Currently, this certainty is provided by Section 95 of the Housing Benefit Regulations 2006:

Circumstances in which payment is to be made to a landlord

95.-(1) Subject to paragraph (2) and paragraph 8(4) of Schedule A1(11) (treatment of claims for housing benefit by refugees), a payment of rent allowance shall be made to a landlord (and in this regulation the "landlord" includes a person to whom rent is payable by the person entitled to that allowance)-

(a)where under Regulations made under the Administration Act an amount of income support or a jobseeker’s allowance payable to the claimant or his partner is being paid direct to the landlord; or

(b)where sub-paragraph (a) does not apply and the person is in arrears of an amount equivalent to 8 weeks or more of the amount he is liable to pay his landlord as rent, except where it is in the overriding interest of the claimant not to make direct payments to the landlord.

(2) Any payment of rent allowance made to a landlord pursuant to this regulation or to regulation 96 (circumstances in which payment may be made to a landlord) shall be to discharge, in whole or in part, the liability of the claimant to pay rent to that landlord in respect of the dwelling concerned, except in so far as-

(a)the claimant had no entitlement to the whole or part of that rent allowance so paid to his landlord; and

(b)the overpayment of rent allowance resulting was recovered in whole or in part from that landlord.

(3) Where the relevant authority is not satisfied that the landlord is a fit and proper person to be the recipient of a payment of rent allowance no such payment shall be made direct to him under paragraph (1).

15. However, the explanatory memorandum provided in respect of the SSAC meeting of 13 June 2012 explains that:

"In order to provide greater flexibility , the detailed circumstances about when payment exception will be appropriate will be set out in guidance, rather than in regulations. This approach will enable cases to be assessed on their individual merits".

16. While the NLA welcomes flexibility in the context of incorporating differing circumstances and personal criteria in relation to the assessment of discretionary direct payment, as largely achieved by the 2011 amendments to Local Housing Allowance Regulations, it remains imperative that certain triggers for the adoption of direct payment to landlord remain mandatory.

17. Should a recipient of Universal Credit fail to pass on the relevant housing component to their housing provider for a period exceeding two months, the majority of landlords will be compelled to initiate possession proceedings in order to bring the tenancy to an end. This can often be avoided by the switch to direct payment to landlord.

18. Failure to control rent arrears through a coherent mechanism will lead to increased tenancy failure and recourse to possession proceedings which benefit neither party.

Cross-tenure parity:

19. The NLA is also concerned about the lack of apparent parity between households residing in different tenures. In the case of deductions in respect of mortgage interest, the draft regulations state:

Schedule 4 -

4. - (1) If the circumstances asset out in sub-[paragraph (2) apply to a relevant claimant in respect of a loan, the Secretary of State is to pay the specified benefits directly to the qualifying lender to whom the mortgage interest payments in respect of the loan are payable.

20. Given that this clause is most likely intended to prevent the loss of a households home as a result of repossession brought to bear as a consequence of a failure to service mortgage interest, it remains to be seen why the same protection cannot be afforded to those renting their home from a private landlord.

21. Failure to meet the obligations in respect of rental payments to a private landlord will most likely lead to repossession of that property by said landlord. Likewise failure to service a mortgage in accordance with the terms agreed at the outset will result in repossession of the property by the mortgagee. As the cause and effect are the same in both of these incidents, it would seem logical that the regulations should provide the same solution to prevent the loss of homes.

Guidance to replace regulation:

22. As outlined above payment exceptions, i.e. splitting the components of Universal Credit, making direct payment to third parties and splitting joint claims between the relevant recipients are to be supported by guidance rather than explicit regulation.

23. The NLA can understand the need to include a means whereby individual circumstances can be taking into account and individual financial independence can be nurtured. Flexibility on the part of those making decisions about an individual’s ability to handle their household arrangements is to be welcomed.

24. However, the Association remains deeply concerned that the net impact of the removal of statutory controls over the circumstances representing an individual recipient’s inability to manage their household finances, and crucially their housing costs, will be to create instability within the rented sector.

25. At present, local authorities are provided significant discretion in relation to making direct payment to landlord if it believes that do so will assist in the establishment or continuation of a tenancy. However, should it become apparent that rental payments are not being made and arrears are being accrued, direct payment to landlord is mandated.

26. The removal of this regulatory backstop would be damaging to landlords business interests and the willingness of many present in the sector to work with recipients of Universal Credit. This, in turn, is likely to increase the risk profile of landlords working with benefit recipients and therefore their running costs in relation to tenancy management and access to finance.

27. Furthermore, the lack of certainty concerning what these guidance will contain and what weight they will carry in relation to interpretation following the roll-out of Universal Credit is creating additional concern on the part of landlords considering the future of their businesses.

28. Professional landlords frequently plan their portfolio investment and maintenance strategy over a 10 to 20 year period. This is very difficult to do without reasonable knowledge concerning the risk profile of a significant part of the market place. i.e. those prospective tenants who are either in receipt of housing support, or may become so during a tenancy.

29. It is the NLA’s contention that a proper assessment of the potential impact of these draft regulations cannot be made without knowledge of the intended form and contents of the associated guidance.

30. It is particularly difficult to plan for the impact of payment exceptions in respect of Universal Credit as no providers of accommodation in the PRS have been included in the contemporaneous Direct Payment Demonstration Projects.

Determining financial and vulnerability risk factors:

31. The criteria against which applications for payment exceptions will be judged have not been made available in parallel with the draft regulations under consideration. As a result it is very difficult to comment on the likelihood that, upon implementation, the screening will be effective.

32. This further state of uncertainty makes it very difficult for private landlords to plan their investment strategies for coming years, particularly if their current market includes those in receipt of state housing support.

33. The relevant explanatory memorandum states that the use of a criteria-based screening process is being considered to identify those individuals and households which need budgeting support and/or may require the application of payment to their landlord. It goes on to cite that this approach is being explored by the Demonstration Projects in the hope that ‘early lessons learnt’ from these tests will be incorporated into subsequent Universal Credit proposals.

34. As referenced earlier, no private housing providers have been included in the Demonstration Projects leading the NLA to conclude that the intricacies of the private rented sector may not be taken fully into account when determining the necessary criteria.

Housing benefit cap:

35. The NLA has serious concerns about the impact which the benefit cap, and specifically the cap aimed at housing benefit payments will have on access to housing. However, we note that review of the Government’s policy agenda is not within the scope of this inquiry and will limit comments to the implementation of these regulations.

36. Having reviewed the regulations under consideration, the NLA remains unclear concerning the practicalities of administering the housing benefit cap in such cases as the housing component payments are made directly to the landlord.

37. The Housing Benefit (Benefit Cap) Regulations 2012 state:

Reduction of housing benefit

75D. – (1) Subject to paragraph (2), where the benefit cap applies, the relevant authority must reduce the amount of housing benefit to which the claimant is entitled by virtue of section 130 of the Act by the amount by which the total amount of welfare benefits exceeds the relevant amount.

(2) Where the reduction would reduce the claimant’s housing benefit to less than the minimum amount of housing benefit provided for in regulation 75 (minimum housing benefit), the relevant authority must reduce the claimant’s housing benefit by such amount as will leave the claimant entitled to the minimum amount.

38. Given that the ‘minimum housing benefit’ specified by the 2006 regulations is £0.50, this would result in a derisory direct payment to the recipient’s housing provider and an outstanding liability in terms of rent due. By virtue of the existence of direct payment to landlord, the households effected are likely to meet the assessed vulnerability criteria and be ill-prepared to make arrangements for alternative payment.

39. The NLA is concerned that these circumstances will lead to the termination of an increased number of otherwise sustainable tenancies as a result of accrued rent arrears.

17 August 2012

Prepared 7th September 2012