Rent arrears deductions in Universal Credit. Community Housing Cymru Group response

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1 Rent arrears deductions in Universal Credit Community Housing Cymru Group response 1. About Us The Community Housing Cymru Group (CHC Group) is the representative body for housing associations and community mutuals in Wales, which are all not-for profit organisations. Our members provide over 155,000 homes and related housing services across Wales. In 2012/13, our members directly employed 8,000 people and spent over 1bn in the Welsh economy. Our members work closely with local government, third sector organisations and the Welsh Government to provide a range of services in communities across Wales. Our objectives are to: Be the leading voice of the social housing sector. Promote the social housing sector in Wales. Promote the relief of financial hardship through the sector's provision of low cost social housing. Provide services, education, training, information, advice and support to members. Encourage and facilitate the provision, construction, improvement and management of low cost social housing by housing associations in Wales. Our vision is to be: A dynamic, action-based advocate for the not-for-profit housing sector. A member centred support provider, adding value to our members activities by delivering the services and advice that they need in order to provide social housing, regeneration and care services. A knowledge-based social enterprise. In 2010, CHC formed a group structure with Care & Repair Cymru and the Centre for Regeneration Excellence Wales (CREW) in order to jointly champion not-for-profit housing, care and regeneration. 1

2 The third party deduction (TPD) scheme in Universal Credit (UC) works on a similar basis to the arrangements for existing benefits (e.g. Income Support, Jobseeker s Allowance). The main difference is that there is a single Priority Order for deductions, which includes all deductions that can be made from UC (e.g. utility arrears, child maintenance, Social Fund loans, benefit overpayments). The Priority Order is applied when there is insufficient UC in payment to meet all deductions, or if the total amount of deductions that have been requested would exceed the overall maximum deduction rate. The overall maximum deduction rate is an amount equal to 40% of the claimant s UC standard allowance. Housing-related deductions, such as rent arrears, are top of the Priority Order, to protect the claimant and their family from being made homeless. The current deduction rate for rent arrears is set at 5% of the claimant s UC standard allowance. We are considering whether to increase the deduction rate for rent arrears, in order to recover them more rapidly. This could help both safeguard claimants tenancies and stabilise landlords income streams. One option we have identified would be to increase the deduction rate to 40% of the claimant s UC standard allowance (which is equivalent to the overall maximum deduction rate in UC). If however any other deductions were required on the award, e.g. utility arrears, fines etc, we would reduce the 40% for rent arrears by the amount of the other deductions, but only down to the current rate of 5%. We could also make a Financial Hardship decision if the claimant or a third party, such as a representative from the Advice Sector or a Social Landlord, contacted us to say the claimant was struggling because of the amount being deducted. This option would apply to existing cases, as well as new referrals for rent arrears deductions. The monthly deduction rates are set out below (based on April 2014 benefit rates): UC standard Current 40% option allowance 5% rate Single under Single 25 or over Couple both under Couple one/both 25 or over In our discussions of this proposal with the Social Security Advisory Committee, they recommended that we obtain the views of specific stakeholders, including organisations that provide debt and money advice. We would welcome your views on the following questions. 2

3 Do you agree that the deduction rate should be increased from the current rate of 5% of the claimant s UC standard allowance? Please give reasons for your response. Yes. Increasing the deduction rate is appropriate, but in doing so, the DWP must demonstrate flexibility and establish clear lines of communication with social landlords, developing a greater understanding of the impact further deductions may have on claimants. Social landlords are well placed to work closely with both DWP and their tenants to gain a good understanding of their financial situation, and assess an appropriate level of deductions. Increase the deduction rate would mean that arrears are repaid more quickly, therefore improving social landlords' financial stability. An increased deduction rate for rent arrears would also reinforce the importance of claimants paying their rent, by establishing it as a priority debt. Claimants subject to third party deductions for rent arrears should remain on managed payments to landlords for their ongoing housing costs. If this, along with the increased deduction rate, is managed appropriately, it could well result in helping to achieve the policy aims of Universal Credit, returning claimants to the single monthly payment sooner. Would a deduction rate of up to 40% of the claimant s UC standard allowance be an appropriate rate? If not, what would be an appropriate rate and why? We do not agree that a flat and in-flexible rate of 40% is appropriate. We appreciate that this would allow for quicker repayment of rent arrears, but it would cause substantial financial hardship for many tenants. It is unlikely that those tenants who accrue enough arrears for third party deductions to apply will have only one debt. Therefore, deducting 40% from their Universal Credit payment is likely to exacerbate their situation. An important principle behind third party deductions is that they exist to maintain tenancies. A rate of 40% may lead to claimants finding it difficult to maintain their tenancy, even though ongoing housing costs and arrears repayments were being covered, as they would be left with very little money to cover other essential expenses e.g. food, Council Tax, utilities. Evidence submitted by Welsh landlords taking part in the DWP s Direct Payment Demonstrations Project showed that a claimants on the project were already struggling to cope financially on the disposable income available to them, and any significant additional expense can throw them off course. Claimants simply don t 3

4 have a safety net of savings to fall back on, and the stark choice is often to cut back on food or heating, with damaging implications to their health and/or lifestyle. Setting unrealistic levels of repayment, to landlords or any other third party is setting claimants up to fail. While we support the intention for an increased rate of deduction for rent arrears, we believe that an absolute maximum of 20-25% would be appropriate in the vast majority of cases. However, as previously stated this requires flexibility and a greater understanding of claimants financial situation. In light of recent discussions with DWP around the role of social landlords as a trusted partner in the Alternative Payment Arrangement process, we feel a trusted partner approach should apply here too. The trusted partner i.e. social landlords, are in an appropriate position to assess what level of repayment up to the 20-25% ceiling we are suggesting - will allow a claimant to both sustain their tenancy and repay rent arrears, without leading them into further financial hardship. How would an increased deduction rate impact on claimants? Increased deduction rates, where they are set at inappropriately high levels, could lead to a number of negative impacts on claimants, including causing further financial hardship, and potentially leading to poverty, and the stark choices illustrated earlier in the consultation whereby claimants must choose between heating, eating and paying their rent. However, where increased deduction rates are set at appropriate levels, which claimants can sustain, the increased deduction rates could have some positive impacts, including highlighting the importance of rent payments and budget setting, in tune with the intentions of the Universal Credit policy. Social landlords should be involved in the decision about their tenants, and be able to make a case for lower deduction rates where a higher rate is likely to cause financial hardship. These decisions should be taken at the earliest possible stage i.e. before the first deduction, rather than waiting for a claimant to experience financial difficulty before the rate is reduced. 4

5 How would an increased deduction rate impact on landlords? The increased rate of deduction could lead to great financial stability for landlords, but as we have stated throughout this consultation, this must be balanced with the need for sustaining tenancies and not causing financial hardship for tenants. In turn, it could also reduce the burden on courts through potential eviction actions, and the associated costs that court action would bring. If we increase the deduction rate, the new rate would be applied to both new applications for rent arrears deductions and to claimants who are currently having 5% deducted from their UC. Have you any suggestions on how we could reduce the impact on claimants when the new rate is initially applied to their claim? If the changes are to apply to claimants who are currently having 5% deducted, DWP must communicate this clearly with both claimants and landlords at the earliest stage. All claimants both those subject to 5% deductions already, and new applications for third part deductions should be subject to a review on whether an increased deduction rate will cause financial hardship, and an appropriate level of deduction applied. Personal budgeting support should also be made available. Is there anything else you wish to add about how we could improve the process for deducting rent arrears in UC? The process to request and receive third party deductions must work in tandem with the arrears trigger for alternative payment arrangements. Applications for third party deductions should be able to be made at the same time as a request for an APA due to arrears. The current process for the landlord to request an APA allows for conversation between the landlord and the DWP after one month s arrears have built up, and the possibility for an APA to be put in place at that point. It should also be possible for landlords to request a third party deduction at this point to provide a secure means of the tenant paying back the arrears and possible prevent further legal action taking place. Given that the level of repayments will depend on the age and circumstances of the claimant, whether they have any other deductions, and their level of earnings, it is 5

6 important that landlords are kept informed of the amount that they can expect to receive each month and informed if there are any changes to this. Questionnaire completed by (on behalf of which organisation): Aaron Hill COMMUNITY HOUSING CYMRU Please include contact details Please return the completed questionnaire to the following address: Please ensure your response reaches us by 11 th April Community Housing Cymru Group April