HC 576 Progress towards the implementation of Universal Credit

Written evidence submitted by Dr Peter Williams, Cambridge Centre for Housing and Planning Research, University of Cambridge and Professor Steve Wilcox, Centre for Housing Policy, University of York

1. The creation of the Universal Credit system is a very large undertaking and is very complex. In this brief submission we focus upon one small aspect of the new regime, support to home owners. This group are very easily overlooked in the overall enterprise but the reality is that the changes proposed here have the potential to further exacerbate the current decline in home ownership, an outcome with far ranging consequences both for households and government. We have a number of core concerns with the proposals as currently set out. These are as set out in subsequent paragraphs.

2. The proposal to restrict the payment of SMI to those working 0 hours only (rather than 16) is extremely ill-considered. Remaining part of the work force is an important issue here and not least in terms of the ways lenders view customers in difficulty. Removing this modest incentive puts in place a cliff edge in terms of benefits –some or none and undermines the borrower’s credit standing and engagement in work. Far from progressing issues this proposal actually moves support for home owners backwards. Currently if homeowners work for less than 16 hours they are still in principle eligible for SMI; but the amount of their eligible support is removed £1 for £1 against their earnings. Under universal credit, the 16-hour rule would disappear, but however little a homeowner worked or earned it is proposed that any support for mortgage costs would automatically cease. The only help effectively provided to in-work homeowners would then come in the form of the higher earnings disregards available within universal credit for those households not receiving any help with their mortgage costs.

3. As the attached report argues the ‘unemployment trap’ built into the universal credit proposals will become far more extensive in its effects. These provisions will also create particular difficulties for those households currently in receipt of SMI that are in low-paid, part-time work. DWP estimates this as around five per cent of all those with SMI linked to JSA or income support. These provisions run completely against the stated objective of the universal credit proposals to remove barriers to households moving into part-time work, as part of a more effective approach to supporting moves into full-time work at a later stage.

4. The draft regulations ignore completely all the major issues which have been discussed extensively over the last two decades around support for home owners and go nowhere near considering any of the solutions that have been aired. What we get instead are a series of detailed and largely cost saving measures at best peripheral to improving how we support home owners in difficulty. Home ownership in the UK is falling in percentage terms. These proposals in conjunction with tightening credit standards in the mortgage market driven by the FSA’s Mortgage Market Review will ensure that decline continues.  The proposals are fundamentally flawed, and will not provide sufficient support for the owners that are directly affected, for the housing market, or for the wider economy. Far more comprehensive and wide-reaching reforms are required.

5. The Joseph Rowntree Foundation (JRF) is currently funding Professor Wilcox and myself to review and update proposals for a  ‘Sustainable Homeownership Partnership’ (SHOP). SHOP would provide a far more effective safety net for out-of-work homeowners, with the costs shared between borrowers, lenders and government. Indeed, the introduction of universal credit provides the opportunity to extend the SHOP model so that it incorporates both in- and out-of-work means-tested assistance, again with the costs shared between the three parties. This would remove the ‘unemployment trap’ inherent in the current proposals, and permit a reconsideration of the issues of time limits and possible charges on an owner’s dwelling for longer-term claimants, in a more constructive context. There would also be advantages in more fully aligning the rules for help with housing costs across tenures within the framework of universal credit. In particular, if mortgage costs were to be eligible for assistance for homeowners in low-paid work, there would be no need to continue with the complex proposals for a ‘two-tier’ earnings disregard for tenant households.

17 August 2012

Prepared 7th September 2012