Hot Topic: What is Universal Credit and how will it affect the market?

January 10, 2018

When the Government announced reforms to the benefit system to a single payment called Universal Credit (UC) it had a basic premise, to be a benefit which helps the unemployed to become employed and to support the under-employed to become employed full time.

In order to achieve this, the benefit is paid monthly like a wage, including help for housing costs in the same way a wage would. Furthermore it is administered by one department, the Department for Work and Pensions (DWP) who have limited communication with other agencies.

Under the previous system the housing benefit departments have had exceptional relationships with social landlords across the country. There was an enormous amount of data sharing and cooperative working to help vulnerable claimants receive the correct amount of housing benefit and prevent homelessness.

Universal Credit replaces three different benefit offices who all work out their benefits differently: housing benefit (worked out weekly), tax credits (worked out annually) and income replacement benefits (fortnightly). The DWP are right in arguing that this drip of payments coming in at different times of the months makes it difficult for people to budget once they start work and are paid monthly.

It also has a major advantage by allowing real time information to be used so claimants whose working hours change weekly and monthly don’t have to visit their local benefit office every 2 weeks in order for their benefits to be suspended or readjusted as their wages change.

The issue lies with how complex the benefits system is and that in order for a system to work all parties need to be listened to and their concerns addressed. This week the Liberal Democrat’s Work and Pensions Spokesperson, Stephen Lloyd initiated a debate in Parliament on the impact of Universal Credit on the private rented sector.

He has previously spoken out about his concerns that the 1.5 million private sector rented tenants across the UK could potentially be in danger of losing their homes if they fall behind on payments, unless the government makes it easy for landlords to receive direct payments from tenants.

Most private landlords cannot afford not to receive rents for months on end, while their tenants are being transferred from one system to another. The Residential Landlords Association (RLA) has spoken out to support the landlords, calling on the government to introduce a system that would allow private landlords to be informed when a tenant moves from the older system to Universal Credit in order to establish suitable rent payment schedules, which will ensure tenants don’t fall behind on rent.

The system would also benefit from a mechanism put in place, which would give landlords confidence that rent arrears can be reclaimed after a UC tenant leaves a property. Tenants should be given the option to choose to have the housing element of Universal Credit paid directly to the landlord, if they wish, argues the RLA.

Recently one change to UC has been introduced following extensive campaigning, which will allow landlords to obtain direct payments from the DWP in case of rent arrears.

Previously under the rules if the tenant was in arrears of at least two months the landlord could apply for Alternative Payment Arrangements (APAs) which would allow the housing element of UC to be paid directly to the landlord. The issue was that tenants’ explicit consent was required in order to apply for an APA.

In practice that means a tenant could refuse consent which would prove costly for the landlord. The DWP has now scrapped the requirement and if a landlord can prove the tenant is in arrears of two months or more it will introduce payments direct to the landlord as used to happen under housing benefit.

73% of landlords still lack confidence in renting to tenants on UC due to uncertainty that they will be able to recover rent arrears.

The reality is that landlords simply cannot afford to be left without rent; therefore they are more likely to let their property out to a tenant that they perceive to be less risky. The RLA has assured that they will continue to work with all sides to secure the benefit system that is easy to understand, fair to all and supports the vulnerable, ensuring the security of a home for all claimaints.