HC 576 Progress towards the implementation of Universal Credit
Written evidence submitted by The Convention of Scottish Local Authorities
1. The Convention of Scottish Local Authorities welcomes the opportunity to provide evidence to the Select Committee. Our particular interest is on the impact of the move to Universal Credit on Scottish local authorities, both direct impacts and indirect consequences.
2. While COSLA supports moves to simplify the benefits system and the intention to move people from benefits into work, we are concerned about the pace and timescale of changes and the potential impact on income streams and demand for services from vulnerable people. COSLA has previously lobbied about significant aspects of the benefits changes and we are concerned that risks to services and potential adverse impacts of changes are mitigated as far as possible. To that end we are engaging directly with the Department for Work and Pensions and Scottish Government to highlight issues for local authorities and to seek to ensure that planning for the implementation of Universal Credit takes account of these.
Direct Financial Impacts
Council Tax Benefit and Migration of Housing Benefit
3. COSLA and Scottish local authorities are working with the Scottish Government on a localised council tax reduction scheme, which in the first year will closely mirror the existing Council Tax Benefit. A key concern is that the totality of resources that will be transferred to Scotland will result in a larger reduction than the 10% announced. We also believe that the administrative costs transferred to Scotland should reflect the real costs of operating a council tax reduction scheme without the economies of an integrated service once housing benefit migration to Universal Credit is complete. COSLA are also concerned that effective and sufficient data sharing by DWP supports delivery of a localised scheme. A further concern is that the consequential business impacts on councils of Universal Credit introduction are recognised and funded by the DWP and that DWP recognises this throughout the period of housing benefit migration through sufficient administrative subsidy.
Impact of changes to eligibility and support with housing costs
4. COSLA is concerned about the impact that direct monthly payments could have on housing delivery and planning in Scotland. We anticipate significant impacts on rent arrears and homelessness if this is not phased in effectively over a much longer timescale. These impacts could be exacerbated by the impact of under-occupation measures from April 2013. We are also concerned that housing investment plans could be put at significant risk.
Impact on Revenues and Benefits function
5. The abolition of Housing Benefit is likely to significantly compromise the efficiencies of an integrated service once councils only operate a council tax reduction scheme. This will entail significant business and workforce impacts for councils. Councils are currently undertaking a business impact analysis to determine the financial impact of the reforms and we believe that the costs associated with the changes to Benefit delivery, including staff, systems, contractual and transition costs, should be fully met by government.
Indirect Financial Consequences
6. COSLA believes that the likely impact of the totality of welfare changes on the most vulnerable children and families will translate into increased demand for social work services across Scotland. There is also concern about the impact of benefit changes for people with disabilities. The operation of under-occupation measures and further planned changes fail to take adequate account of the needs of many people with disabilities and are likely to produce increased service demand.
7. There is likely to be additional work and costs for local authorities as new assessment processes have to be designed for passported benefits. Again, effective data sharing by the DWP is required to support and reduce this extra burden.
8. Information and advice services, mainly supported through local authorities in Scotland, are likely to see substantial increased demand. DWP should make sufficient investment both to support this activity and any future role to support delivery envisaged for local authorities.
Impact on Scotland’s Local Authorities
9. This submission is to advise the Select Committee the key points which COSLA would wish to highlight in relation to the impact of the Welfare Reform Act and the introduction of Universal Credit. The submission covers both the direct and indirect financial impacts on Local Government.
Direct Financial Impacts
10. The Welfare Reform Act will have significant direct financial impacts across a whole range of services currently delivered by Scottish Councils.
Council Tax Benefit and Migration of Housing Benefit
11. Council Tax Benefit is being abolished from April 2013 and Scottish Government has been working with COSLA and local authority representatives on a localised Council Tax Reduction scheme. Plans by the UK Government to cut the funding that will be devolved to Scotland and English local authorities by 10% will have direct financial consequences which would either need to be passed on to individuals or be absorbed by Scottish Government/ Local Government. Recognising the challenging timescales to have replacement arrangements in place, COSLA and the Scottish Government have now agreed to provide £40m of funding to top up a Council Tax Reduction scheme for 2013/14 and to operate a reduction scheme on similar lines to the existing Council Tax Benefit. COSLA and the Scottish Government are continuing to explore arrangements on how Council Tax Reduction would operate in Scotland after 2013/14.
12. COSLA is concerned at the approach that the Department for Work and Pensions appears to be taking to calculate the sum to be devolved to Scotland to operate localised council tax support. While the total funding to be devolved has yet to be announced, we understand that, in considering the level of funding, reference has been made to the Department for Work and Pensions forecasts for Council Tax Benefit expenditure up to 2015/16 (Medium Term Forecast for all DWP Benefits updated 20/07/12) as being the basis for determining the funding to be made available  . These forecasts appear to be indicating that the expenditure for Scotland will reduce by a greater margin than the 10% cut, compared with the estimate for 2012/13. By 2015/16 the forecast expenditure for Scotland will have dropped by 18% (£70m). At the same time the overall forecast for England, Wales and Scotland combined falls by 10.7% in 2013/14, with a slight increase in expenditure for 2014/15 and 2015/16. Whilst we are not in a position to offer our own forecasts, instinctively the position set out in the DWP forecasts seems to us to be contrary to our expectations and appears to leave Scotland at a significant disadvantage compared with the rest of Great Britain. This is particularly in light of the outturn figures for previous years which show that expenditure has increased year on year, clearly suggesting that demand has increased over these years. In our discussions with our member Councils there has been no indication from them that they anticipate demand reducing for Council Tax support and indeed many anticipate that demand could increase over the next few years. Whilst understandably that the UK Government wishes to see a reduction in expenditure, it seems more than onerous to us that Scotland should bear a greater than 10% share of this reduction. Both COSLA and Scottish Government have sought clarification on these points from DWP.
13. Local Authorities receive administration subsidy from the Department for Work and Pensions (DWP) to administer both Housing Benefit (HB) and Council Tax Benefit (CTB). The amounts received do not cover the actual costs currently involved. When CTB ceases on 31 March 2013 to be replaced by a localised Council Tax Reduction Scheme in Scotland, we understand that an admin subsidy will be transferred to the Scottish Government. Clearly the DWP will be looking to reduce the amount of admin subsidy as the HB caseload moves onto Universal Credit. At present, councils deliver an integrated benefit service covering both HB and CTB. Since the costs involved in administering the current CTB scheme are within the overall admin subsidy from DWP, COSLA and Scottish councils are concerned that, in attempting to separate out the costs to transfer for future council tax reduction to Scotland, that this should reflect the likely costs of operating council tax reduction without HB administration. Scottish local authorities are concerned that they could be faced with reduced admin subsidy but still most of the fixed costs in administering in administering a new ‘stand-alone’ council tax scheme. Care needs to be taken that simply looking at caseload numbers does not necessarily mean that there will be less work. Customers will continue to contact Local Authorities particularly during the transition from HB to Universal Credit. Staff resources could be compromised leading to a poorer service to our customers.
14. Equally important is ensuring that data held by DWP/HMRC can be fully shared with Scottish local authorities to support the administration of council tax reduction. Without data sharing being made fully available, future local authority processing costs will increase significantly against current levels. Data-sharing also has financial implications for the processing successor arrangements for elements of the Social Fund being devolved and for administration of passported benefits such as free schools meals, footwear and clothing grants that rely on eligibility for existing welfare benefits that will be replaced by Universal Credit.
15. Both of these issues are the subject of current discussions between the DWP and local authorities but the detail is not yet confirmed. COSLA has been working with the DWP to estimate the business and cost impacts on local authorities. This is difficult to estimate fully without all the detail of plans for migration. Our view is that it appears that certainly in the next 2 to 3 years, local authority workloads are likely to increase and that levels of admin subsidy should not be reduced.
Impact of changes to eligibility and support with housing costs
16. Housing Benefit will be abolished and housing costs will be included in the Universal Credit when this is introduced from October 2013. As Universal Credit will be paid directly to individuals Councils expect that rental income will be significantly diminished and arrears and collection costs will increase as individuals may not then prioritise payment of rent. COSLA is concerned that if, for example, arrears could rise to levels around 10% as a consequence, this loss could potentially amount to £50m per annum across Scotland’s councils. We are aware of the Direct Payment Demonstration projects, one of which is in Edinburgh and councils will plan to do what they can to mitigate this risk, but we continue to be concerned that this measure alone, which saves no money for the Government, could lead to a major destabilisation of council housing and social housing generally. Even if the Government continues to see this as the direction of travel for state assistance with housing costs, we believe that such a radical change requires to be phased in over a much longer timescale than currently contemplated if these risks are to be avoided.
17. This situation will be exacerbated when Housing Benefit is reduced for tenants deemed to be occupying a property larger than they need, from April 2013. Tenants will have their Benefit reduced even when there may be no alternative accommodation for them to move into and this could lead to arrears and potentially increased homelessness.
18. The strong possibility of increased rent arrears may require councils to review their housing strategies and plans to invest in improvements and to provide more affordable homes. Increased arrears may also impact directly on Councils’ ability to fund investment in housing stock more generally and could impact on Councils’ ability to meet the Scottish Housing Quality Standard. Less security of rental income streams is also likely to mean that housing association partners may also have a constrained ability to borrow and this is likely to impact on their ability to make as effective a contribution to housing development strategies. While we welcome the work of the DWP on support and exceptions and are contributing to this, COSLA is concerned that housing delivery and planning, which is devolved to Scotland, could be significantly impacted by the approach to implementation of UC across Great Britain. We would strongly suggest that direct payments requires very careful phasing over a longer timescale with appropriate supports in place.
19. Scottish councils are heavily involved in liaison with private sector landlords as part of their existing housing benefit/ local housing allowance administration. It is not clear how this function will be carried out once Universal Credit subsumes payments for housing costs. Scottish councils through COSLA have indicated a willingness to support aspects of delivery of Universal Credit and will be involved in UC local authority pilots. However, early clarity will be required from DWP if the expectation is that councils continue such functions under Universal Credit as well as detail on what financial and commissioning arrangements will underpin such functions.
Impact on Revenues and Benefits function of Councils
20. Councils have merged Revenues and Benefits systems, including Council Tax collection and Council Tax Benefit. With the abolition of Housing Benefit this is likely to significantly compromise the integrated approach to improving outcomes that has been fostered to date.
21. The major consequences we anticipate include:
· Loss of front and back office efficiencies.
· Costs of large scale re-engineering of IT systems and interfaces.
· Adverse impact on Councils’ workforce.
· Risk to effective transitional delivery of on-going Benefits functions.
· Increase in arrears and collection costs.
· Resource pressure to provide additional communication and advice to individuals about the switchover to Universal Credit and attendant confusion for claimants.
22. Councils are currently undertaking a business impact analysis to determine the financial impact of the reforms and this will be further developed in the coming months. In all cases however it is our belief that the costs associated with the changes to Benefit delivery, including staff, systems, contractual and transition costs, should be fully met by government.
23. COSLA and Scottish local authorities along with the Scottish Government are exploring with the DWP a possible delivery role by local authorities to support smooth delivery of Universal Credit and we have encouraged the participation of local authorities in Scotland in local authority delivery pilots. We await more detail from DWP on the precise role that is in envisaged for local authorities. Our understanding is that a role is envisaged to support, in particular, face to face delivery. However, in order to plan and deliver services effectively, many of which will be under pressure, local authorities need more detail on what is expected, how this is to be resourced and whether this is seen as a continuing involvement by DWP.
Indirect Financial Consequences
24. While it is recognised that Universal Credit itself will have both positive and negative impacts on families, COSLA believes that the likely impact of the totality of welfare changes on the most vulnerable children and families will translate into increased demand for social work services across Scotland. There is also concern about the impact of benefit changes for people with disabilities. The operation of under-occupation measures fails to take adequate account of the needs of many people with disabilities and a variety of other groups whose support needs fluctuate, such as people with mental ill health and some of those with learning disabilities. Local authorities have found it difficult to estimate the likely impact this will have on services but coupled with other benefit changes including Disability Living Allowance being replaced by Personal Independence Payments with 2 levels of support rather than 3, most authorities are anticipating increased demand for services, particularly since the Government is seeking to reduce the overall cost of disability benefits by 20% of current costs.
25. Reductions in income as a result of changes, will also impact upon eligibility for council charging for services. However individuals affected may still require social care services.
26. There is also likely to be additional work and costs for local authorities as new assessment processes have to be designed for passported benefits and additional pressure on services if some of these are withdrawn from those currently receiving them because they do not receive some of the successor benefits. Both the Scottish Government and Scottish local authorities are aiming to keep benefit eligibility as close as possible to those who currently receive these benefits, at least initially. However, since current eligibility has been tied to particular benefits for so long, the replacement of these benefits by UC and PIP will inevitably entail additional work, even where the intent is to maintain simplicity. In this respect, access to DWP data on UC entitlement and other benefits and a breakdown of this will be necessary. Otherwise local authorities will be required to carry out additional checks with increased costs to verify eligibility.
27. There is expected to be a substantial increase in demand for all kinds of advice services. In Scotland these are mostly provided or funded by local authorities. Such services include money advice, debt advice and welfare rights advice and appeals. Some of this impact could be mitigated if DWP undertakes sufficient investments in support and financial inclusion. Crucial in this respect will be how DWP proposes to define and treat ‘vulnerable customers’ in the new system. This appears to be still evolving. COSLA and Scottish local authority representatives have been engaging closely with DWP in relation to these issues. However we are still unclear as to what investments DWP will be making and the detail of the role they would wish local authorities to perform in support of the introduction of UC and how much funding might be available to support this.
17 August 2012