Wednesday, 3 November 2010

Paying Housing Benefit direct to tenants

There is a conflict of opinion ojn this issue. Drug users who don't pay the landlord. Landlords who like direct payments becvause they don't have to listen to tenants complain about broken heating, damp, infestations or dangerous electrics.

And strategically, landlords are free from responsibility to upkeep the property assured of income, mop up poperties in the cheapest, most run down areas to minimise their cost base and maximise their profits.

Direct payments to tenants means choosy tenants who have the power to demand better housing, have the control to terminate tenancies on their terms and relocate to better housing.

My view if not apparent is that payments should go to tenants and landlords shopuld be held more accountable by having to respond more procatively to tenants requirements. Landlords can after around eight week scan seek direct payments to them if there are arrears.

As part of this debate I have published the House of Commons Library Notes on the matter which are very informative.

House of Commons Library Note, Standard Note: SN/SP/3211
Last updated: 29 October 2010, Author: Wendy Wilson


The Labour Government piloted a new flat-rate Local Housing Allowance (LHA) based on area and family size in 9 local authorities from November 2003 (later rising to 18 authorities). Alongside this flat-rate allowance the Government required these pathfinder authorities to only pay HB direct to private landlords in certain limited cases. It had increasingly become the norm for landlords to require tenants claiming Housing Benefit (HB) to agree to the benefit being paid direct to them as a condition of granting a tenancy.

Subsequently the Local Housing Allowance was introduced for all new HB claimants in the deregulated private rented sector from 7 April 2008 – except in certain exceptional cases this benefit is paid direct to claimants. This move away from paying HB direct to landlords is controversial – a key concern of landlords is that it has resulted in increased rent arrears.


This note sets out the legal position in relation to HB direct, discusses the pathfinder programme and evidence of the impact of direct payments to date. A DWP consultation paper issued in December 2009 discussed the possibility of returning an element of choice over how HB is paid to tenants (see section 6 of this note).

The Work and Pensions Select Committee carried out an inquiry over 2009-10 on the Local Housing Allowance which was published in March 2010. The report of the inquiry states that direct payments are the most controversial aspect of the LHA and the one on which the Committee received most evidence. The Committee supported the continuance of direct payments to tenants as the default option ““as long as the necessary financial advice and vulnerability safeguards are in place.”

Changes to the calculation of LHA rates announced in the June 2010 Budget has again focused private landlords’ concern on the direct payment of this benefit to claimants. This information is provided to Members of Parliament in support of their parliamentary duties and is not intended to address the specific circumstances of any particular individual. It should not be relied upon as being up to date; the law or policies may have changed since it was last updated; and it should not be relied upon as legal or professional advice or as a substitute for it. A suitably qualified professional should be consulted if specific advice or information is required.

This information is provided subject to our general terms and conditions which are available online or may be provided on request in hard copy. Authors are available to discuss the content of this briefing with Members and their staff, but not with the general public.

Contents

1 The legal position 2

1.1 The ‘old’ rules: payment of benefit 2

1.2 Post 7 April 2008: payment of HB 3

2 Direct payments in the pathfinder authorities 5

3 Pathfinder experiences 6

4 Comment on the ending of direct payments 8

4.1 Prior to implementation 8

4.2 Post implementation 10

5 Rent arrears: advice for landlords 14

6 Labour’s consultation on Housing Benefit reforms 16

8 Coalition Government policy 17

7 The social housing sector 17

1

The legal position

Since 7 April 2008 there have been in place two systems of calculating a claimant’s entitlement to HB. Tenants in private rented housing who were claiming HB prior to this date are subject to the old rules while new tenants after this date, or tenants who experience a break in their claim of over one week or who change their address, are subject to the Local Housing Allowance rules and receive their HB payments direct.

1.1

The ‘old’ rules: payment of benefit

The Housing Benefit (General) Regulations 2006 stipulate that payment of any rent allowance (Housing Benefit) should normally be made to the person who is entitled to the allowance, i.e. the claimant. Regulations 95 and 96 state the circumstances in which payment must or may be made direct to a landlord.

The payment must be made to the landlord where an amount of income support/income based Jobseeker’s Allowance payable to the claimant or their partner is being paid direct to the landlord in respect of arrears or, where the claimant has arrears of at least 8 weeks rent, except where the authority believes that it is in the overriding interest of the claimant not to make direct payments to the landlord. Compulsory direct payments stop once the outstanding arrears are reduced to less than 8 weeks rent.

The rent allowance may be paid direct to the landlord where the claimant requests or consents to this arrangement, or where it is in the interest of the claimant and their family (in the local authority's view and without the claimant's consent), or where the person has

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ceased to reside in the dwelling on which the rent allowance is payable and where there are outstanding payments of rent (without the claimant's consent).

Authorities also have discretion to make the first payment of any new or renewed HB claim payable to the landlord or their representative but it is still sent to the claimant.1 The aim of this is to avoid the possibility of a claimant misusing the first payment of HB which may cover several weeks’ entitlement.

It had increasingly become the norm for landlords to require tenants who are claiming HB to agree to the benefit being paid direct to them as a condition of granting the tenancy.2 The April 2000 Housing Green Paper stated that 70% of private sector landlords received direct payments of HB.3 Direct payment of HB is viewed a means by which landlords can secure their rent payments.

1.2

Post 7 April 2008: payment of HB

Claimants that are subject to the Local Housing Allowance are not, as a general rule, able to opt to have this benefit paid directly to their landlord. The circumstances in which a claimant must still have their benefit paid to the landlord include:



where deductions are being made from DWP administered benefits such as Income Support or Jobseeker’s Allowance in respect of rent arrears; or



where the claimant is in arrears of 8 weeks or more4

unless it is deemed to be in the overriding interests of the claimant not to do so.5

In addition, safeguards are in place with a view to protecting landlords and to stop claimants who cannot manage their rent payments from falling into arrears. These provisions enable local authorities to make payments direct to the landlord where:



they consider that the tenant is likely to have difficulty in managing their financial affairs. For example, if the tenant is known to have a learning disorder or a drug/alcohol problem that would mean they are likely to have difficulty handling a budget; 6 or



it is improbable that the claimant will pay their rent. For example, if the authority is aware that the tenant has consistently failed to pay the rent on past occasions without good reason;7 or



a direct payment has previously been made under regulation 95 in respect of a current award of Housing Benefit.8

The following factors, which are not exhaustive, may be considered when deciding on whether direct payments should be made: 1 Regulation 94(1A) of the Housing Benefit (General) Regulations 1987

2 HC Deb 7 November 2002 c635W

3 Quality and Choice: a decent home for all, April 2000, para 5.44

4 See section 5 of this note.

5 See HB/CTB Guidance Manual, A6.195-212

6 HB Regulation 96(3A)(b)(i)

7 HB Regulation 96(3A)(b)(ii)

8 HB Regulation 96(3A)(b)(iii) 3

As a safeguard. The customer may have learning difficulties, a medical condition or educational needs that suggest that they may have difficulty in handling their own financial affairs; they may not be able to read or have language difficulties; they may suffer from drug or alcohol addiction; or have debt problems. It should be noted that the existence of any of these factors does not necessarily mean that rent should be paid directly to the landlord.

People who are unlikely to pay their rent. Customers may have demonstrated, through their past behaviour, that it is improbable that they will pay their rent. In these cases, a local authority may make payments direct to the landlord.

Local authorities are not obliged to make direct payments where they are not satisfied that the landlord is a “fit and proper person to be the recipient of a payment of rent allowance”. This will apply even when the criteria for a direct payment would otherwise have been met. A landlord may not be a “fit and proper person” where it is proven that they have engaged in financial impropriety. This should normally include an element of HB impropriety, such as fraud or a knowing failure to declare changes in circumstances affecting the payment of benefit. Authorities may choose to consider other areas, such as failure to pay Council Tax or business rates, but generally the lesser connection that the offence or impropriety has with Housing Benefit, the less relevant it will be.9

In response to concerns raised by landlords’ associations, Shelter, CRISIS and some local authorities, around inconsistencies in the way in which LHA safeguards were being administered, the DWP revised parts of its LHA guidance manual towards the end of 2009.

Chapters 5 and 6 of the guidance have been amended to



identify various bodies (ie Community Mental Health Teams, Leaving Care Team) as additional contacts from which to gather evidence when identifying whether a person is unlikely to pay or will have difficulty in paying their rent



emphasise that where a person obtains a private tenancy with assistance from a local housing authority (an LA assisted tenancy), this will often be reliable evidence that a person has had difficulties managing their rent in the past and in many cases safeguarding is likely to be appropriate



remove repetition of the lists of people/bodies that can be approached for evidence to make referencing easier



include an additional paragraph to emphasise that payments can be made to the landlord for a maximum of eight weeks whilst an LA gathers evidence to make a decision about payment direct to the customer’s landlord



stress that there is no requirement for a customer to reach eight weeks’ rent arrears before a LA can make direct payments to the landlord under the safeguard provisions.10

In addition, DWP HB/CTB Circular A26/2009 advises:



The evidence gathering process should begin as soon as there is reason to believe that the safeguards may apply. As this process may take some time consideration 9 DWP, Local Housing Allowance questions and answers

10 HB/CTB Circular A26/2009 4

should always be given to making payment to the landlord for up to eight weeks until the decision is reached.



A date should be set within twelve months to review a decision to pay direct to the landlord.



The claimant, the landlord and any person affected by the outcome of a decision regarding direct payment should be sent written notification of the decision and rights of appeal against that decision.

2

Direct payments in the pathfinder authorities

On 17 October 2002 Andrew Smith announced plans for a new form of HB which would no longer be directly linked to rent levels. From November 2003 this new approach was piloted in nine pathfinder areas and was extended to a further nine areas from April 2005. The original nine pathfinder areas included: Brighton & Hove City Council; City of Edinburgh; County Borough of Conwy; Coventry City Council; Leeds City Council; London Borough of Lewisham; North East Lincolnshire; Teignbridge District Council; and Blackpool Borough Council. The areas selected to take part from April 2005 included: Argyll & Bute, East Riding of Yorkshire, Guildford, Norwich, Pembrokeshire, Salford, South Norfolk, St. Helens, and Wandsworth.

Within these pathfinder areas, alongside the move to paying a flat-rate standard Local Housing Allowance (LHA) based on area and family size, there was a move away from paying HB direct to landlords.11 The then Government argued that this would increase the personal responsibility of claimants:

The Government wishes to move away from the current HB system where most customers have their benefit paid directly to their landlord, which means that they have no personal responsibility for their rent and many are unaware of how much rent is actually paid on their behalf.

By paying LHA direct to the customer it ensures they take on the personal responsibility of paying the rent to the landlord and helps develop the budgeting skills unemployed people will need when they move into the workplace.

It also plays a part in the wider cross Government strategy of greater financial inclusion. The Government also believes that wherever possible LHA should be paid to customers, as is the case for most other benefits and tax credits.12

Safeguards were kept for vulnerable claimants and for landlords where tenants fell into arrears. Malcolm Wicks was questioned on how these vulnerable claimants would be identified in the pilot areas:

Malcolm Wicks: Tenants in the pilot areas will have their rent paid to them rather than to their landlord. However, we appreciate that not all tenants will be able to cope with this responsibility. For this reason safeguards will be in place to ensure that landlords and vulnerable tenants are protected. For example, as now, where it is considered appropriate, the pathfinder authority will be able to make the first payment of benefit direct to the landlord. And in cases where 8 weeks' rent arrears have built up, payments of Housing Benefit will be made to the landlord. In addition, certain groups of vulnerable tenants--such as those living in hostels--will not be included in the standard. 11 The pilots only affected landlords and tenants in the deregulated private sector.

12 DWP, Local Housing Allowance questions and answers

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The pathfinders ran for around 2 years; the results were analysed and ultimately the Government reached a decision to roll-out the LHA nationally and with it the direct payment of HB to claimants. Provision for the introduction of the LHA was made in the 2007 Welfare Reform Act.

3

Pathfinder experiences

A full evaluation of the progress of the LHA and direct payments in the Pathfinder areas was carried out by a consortium of leading research universities with experience in the field. All the evaluation reports can be accessed online at:

http://www.dwp.gov.uk/local-authority-staff/housing-benefit/claims-processing/local-housing-allowance/evaluation/

The final evaluation report on the implementation and delivery of the LHA in the Pathfinder areas found:

…a marked increase in the percentage of claimants receiving the LHA direct in all of the Pathfinders between the authorities’ respective going live dates (Baseline) and November 2004 when all eligible claimants had been transferred onto the LHA and between Baseline and February 2006. It is the case that the percentage of claimants receiving payment direct has not increased in any Pathfinder between November 2004 and February 2006, and has reduced somewhat in most. This may reflect the emergence of vulnerability and payment issues over the Pathfinder period, and the ways in which the authorities have dealt with these.13

The LHA regulations make provision for the direct payment of HB to landlords where the claimant is vulnerable and “unlikely to pay their rent” or are “unable to manage their affairs”. A key concern of authorities had been how they would identify vulnerable claimants. The final evaluation report noted:

Vulnerability decisions and reviews are time consuming and absorb additional resources. This is despite the finding from Table 3.1 above which showed that the great majority of claimants receive direct payment, suggesting that, in all Pathfinders, it is only a minority of the caseload that is involved. However, some participants argued that the amount of work involved in deciding on vulnerability requests is disproportionate to the number of cases with which they have to deal.

That dealing with vulnerability under the LHA is a resource intensive role was observed by many participants. This does not necessarily mean that there is currently widespread resentment on the part of officers in the Service at having to undertake this new task. All saw it as an important and worthwhile, and acknowledged the importance and sensitivity of the decisions that had to be made. As noted in para 6.8 above, some Pathfinders – Brighton & Hove is an example – positively welcome the vulnerability provisions as enabling the Benefit Service to participate in furthering their authority’s wider objectives in respect of social inclusion.14

In respect of rent arrears the final evaluation report on implementation and delivery found that an “overwhelming majority” of claimants in receipt of direct payments of HB were not accruing serious arrears of rent (i.e. eight weeks worth of rent or more). However, a note of caution was sounded over this finding: 13 http://www.dwp.gov.uk/docs/lha-report-10.pdf

14 ibid 6

However, this latter finding needs to be treated with caution because in the great majority of Pathfinders the Benefit Services have procedures intended to prevent arrears reaching the eight weeks level. One way of mitigating the danger of non-payment and arrears is the policy of paying landlords – usually by a cheque made out to the landlord and sent to the tenant’s address – when a claimant in receipt of direct payment is entitled to a particularly large payment, usually the first payment under the claim, but also often the last payment under the tenancy. HB administrators argue that making large payments in this way reflects the requirement of the LHA regime to pay the claimant, since the claimant must then pass the cheque to the landlord in the same way as they would have had to get their rent to the landlord if the payment was in their name. It also offsets landlords’ liabilities in the event of overpayments being made.

More generally, across the Pathfinders, checking the accuracy of large payments and to whom they are to be paid has become a much more high profile task than under the previous regulations because of the potentially major effects on all parties of a claimant receiving a large payment and not using it to pay their rent.

Further, the Benefit Service majority of Pathfinders is prepared to intervene by investigating and where necessary switching payments to landlords before the arrears reach the eight weeks level. Such early intervention is intended to prevent serious arrears arising and, explicitly in some Pathfinders, to protect landlords, many of whom predicted that non-payment of rent by direct payment recipients would be a major problem under the LHA. Coventry is an exception here – the Service will not switch payments to landlords until there is evidence that eight weeks arrears have been accrued, which may explain why this reason figures relatively highly as a reason for making payments to landlords in this authority.

The early intervention strategies in respect of arrears allegations means that in Blackpool, for example, the Benefit Service will begin to act once two missed rent payments, or sometimes only one, are reported, while Edinburgh will act after one month’s rent has not been paid. In Conwy, where, at some administrative cost, the LHA is paid weekly in an attempt to reduce problems of overpayment, the Benefit Service is willing to act after two such payments are missed. As a result in Blackpool’s case, over the evaluation period 60 percent of all payments to landlords were made on the grounds of arrears while at the same time very few ever reached the level of eight weeks rent or more – indeed, Table 6.1 shows that no payments were being made for this latter reason in February 2006.15

Despite the evidence on actual arrears accruing in the Pathfinder areas the final evaluation report on landlords and agents’ experiences in the Pathfinder areas found:

Overall HB/LHA tenants are unpopular with landlords and lettings agents and in particular some landlords cited the introduction of LHA as increasing their reluctance towards letting to HB/LHA tenants. However the research also shows despite the introduction of the LHA there has been a net increase in the overall number of properties owned by letting agents and landlords.

The proportion of landlords reporting arrears over the Pathfinder period did not vary between Pathfinder and Control LAs (65%). However it was more common for Pathfinder landlords/letting agents to think that LHA recipients were more likely than HB tenants under the previous arrangements to fall into arrears. 15 ibid 7

Most landlords and letting agents thought processing times under the LHA were either the same or had improved (83%). Processing of safeguard decisions are however considered much slower.

Also the greater transparency offered through the simplicity and publicising of LHA rates have not had the feared knock on effect of inflating rents. Though rents have increased in the Pathfinder areas they have not increased anymore than in Control areas suggesting that LHA is not the cause of the increase.16

The final evaluation report on claimants’ experiences of the LHA and direct payments found that a majority of claimants prioritised their rent payments:

Evidence from the sample points to the fact that it is very unusual for claimants to get into rent arrears when they are being paid HB (this mirrors the finding in the Wave 2 Survey Report (Roberts et al., 2006)). Paying the rent is seen as a matter of prime importance and claimants appeared to hold the view that it represented such a large amount of their income that should they fall behind with it, catching up would prove very difficult indeed. Generally, they made statements, such as, they would rather not eat, or would use a credit card (where one was possessed) rather than default on the rent.

In general, therefore, claimants did not use the HB payment for any other purpose than paying the rent. They seemed aware of the risk of ‘accidentally’ spending the LHA as it ‘sits’ in the bank account but by dint of organisation, ‘willpower’ or being ‘quite good with money’, (although the HB was not kept separately), it generally remained untouched except for the purpose for which it was intended – to pay the rent. However, a small minority (of those who were not in arrears) occasionally borrowed from the payment and then – replaced it; using it as a flexible source of money (rather like a credit card). This was, however, very unusual.17

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Comment on the ending of direct payments

4.1

Prior to implementation

Prior to the piloting of direct payments to tenants commentators emphasised that the ending of direct payments to landlords (except in certain cases) would mean that HB assessments must be accurate, speedy and consistent. Sam Lister of the Chartered Institute of Housing said that if a claim took 26 weeks to process and the tenant received a cheque for over £2,000 and disappeared with it, ‘that would be a problem.’18 The Government conceded in the April 2000 Housing Green Paper that ending direct payments would open up the risk of some tenants choosing not to pay their rent: ‘this would cause arrears to build up, affecting the finances of landlords and, at the extremes, leading to eviction and possible homelessness for tenants.19

Alternatively, the case for removing direct payments had been made many times when considering options for reforming the HB system. In Housing Benefit: what the Government ought to do – but won’t, Dr Peter King said:

As we have seen, the majority of tenants do not receive a monthly housing benefit. Instead, payments are sent direct to their landlords. Thus for tenants receiving full 16 http://www.dwp.gov.uk/docs/lha-report-11.pdf

17 http://www.dwp.gov.uk/docs/lha-report-13.pdf

18 ‘Tenants on benefits will have to shop around for low rents’, Inside Housing, 24 October 2002

19 Quality and Choice: a decent home for all, April 2000, para 11.79 8

housing benefit, rent levels are a matter of indifference. They need not be aware of the rent they are charged and need not develop a close relationship with their landlord.

The key issue though is that by-passing the tenant gives landlords some control over housing benefit, through their ability to set rent levels. They may also have an incentive to allocate dwellings to housing benefit recipients, since this guarantees their income. They are therefore able to ‘milk’ the system and, certainly in the case of local authorities before 1996 and housing associations, use housing benefit as de facto supply side subsidy.

A reformed benefit system should attempt to break this producer capture. This can be done by making all payments to applicants and not their landlords. Landlords should not be able to receive benefit payments direct, but only from their tenants.

This would re-establish personal responsibility on the part of the tenant and dramatically re-shape the power relations between landlords and tenants. Landlords would have to deal directly with tenants based on their contractual obligation. It would also make rent levels a significant part of that relationship again, in that landlords would have to consider the response of tenants to rent increases…

There is also the important point that households would become more aware of the real cost of their housing. This, of course, is an important prerequisite if rational choices between available dwellings are to be made. Payments direct to the landlord ensure that rent levels are a matter of indifference to benefit recipients. Prohibiting the landlord from receiving payments direct would ensure that rent levels are relevant to households. This awareness of cost should serve to prevent ‘up-marketing’ and allow a more genuine market to develop.20

Dr King rejected the argument that tenants may not use HB for the purpose for which it is paid as an ‘essentially paternalistic’ one: ‘It assumes that tenants are not competent to manage their own affairs and thus should not be trusted to use their income responsibly. However, the outcome of such an approach, which has been held in housing policy for many years, is precisely to remove responsibility from individuals and to create the shortcoming which is assumed.’21

A baseline survey to collect ‘benchmark’ information on the characteristics and attitudes of the private landlords and agents in the nine original pathfinder areas found the following results in relation to direct payments:



A particular concern regarding the implementation of LHA is the matter of housing benefit being paid direct to tenants. More than eight in ten of the survey respondents said that they preferred housing benefit to be paid directly to themselves rather than to their tenants, and amongst the small minority of landlords who preferred to let to housing benefit tenants this was most commonly because they could receive the benefit directly.



Almost one half of respondents who had let to housing benefit tenants within the past two years had in fact made payment of the benefit directly to themselves a condition of a tenancy. 20 Dr Peter King, Adam Smith Institute, 2000, p 21

21 ibid, p 22

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Not surprisingly, therefore, almost two thirds of landlords and agents thought that they would be less likely to want to let to housing benefit tenants if they were no longer able to receive payments of housing benefit directly.22

Prior to the LHA’s introduction in the Pathfinder areas the National Federation of Residential Landlords warned that the removal of direct payments to landlords would deter them from letting to HB claimants:

Nobody’s been consulted as landlords on this. Landlords who aren’t allowed to have the rent direct, where they can have a choice, will not accept housing benefit tenants and therefore the choice to tenants will go down.23

The Association of Residential Letting Agents (ARLA) also pointed out that rules that allow councils to claw back HB overpayments from landlords, and the fact that HB would still be paid in arrears in the pilot areas, would act as major deterrents to private landlords.24

The Regulatory Impact Assessment (RIA) on the Welfare Reform Bill 2006-07 said that private landlords had expressed their opposition to making payments to tenants: “not only would their rent now not be guaranteed if tenants fall into arrears, they would also incur additional rent collection costs.”25 The RIA estimated the likely cost of defaults to landlords to be between £2.5-£4 million a year once the LHA was rolled-out to all private tenants; representing £5 per tenant receiving the LHA.26 On rent collection costs, the Government argued that these are a legitimate responsibility of landlords – the additional rent collection and rent management costs for landlords were estimated to be in the region of £4 to £6 million a year; representing a cost to landlords of £7 per tenant per year.27 The RIA said that the national LHA scheme would take landlords’ concerns into account by including discretionary and mandatory safeguards to enable local authorities to make payments direct to landlords where appropriate.

Resesarch published by the Joseph Rowntree Foundation in May 2007 on claimants' views and experiences of HB payment in the context of household budgeting, attitudes to rent paying and the proposed introduction of the LHA concluded, with few exceptions, that most claimants preferred the arrangements that they had in place, whether payment to them or to their landlord.28

4.2

Post implementation

In May 2008 Shelter published Shelter’s input into the review of the private rented sector in which it highlighted concerns in relation to the direct payment of the LHA to tenants:

Shelter also remains concerned about the direct payment element of the new LHA arrangements. Recent anecdotal evidence has highlighted that some landlord organisations are advising members not to let to LHA claimants because of the perceived risks of the move to direct payments. We are also concerned that DWP’s guidance to local authorities does not place a requirement on LHA staff to be pro- 22 Landlords and Agents in the nine LHA pathfinders: summary report

23 ‘Curbs to rent direct will deter private landlords’, Inside Housing, 8 November 2002

24 ‘Incentives to shake-up benefit’, Inside Housing, 18 October 2002

25 Welfare Reform Bill: Regulatory Impact Assessment, p.28

26 ibid p.32

27 ibid

28 JRF, Paying Housing Benefit to Claimants, May 2007: http://www.jrf.org.uk/knowledge/findings/socialpolicy/2076.asp

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active in identifying someone as potentially vulnerable and consider that this should be a minimum requirement for the administration of LHA.29

Additional research by Shelter involved contacting over 100 landlords across four Broad Market Rental Areas and recording their reaction to an enquiry from a LHA claimant. Shelter found a high proportion of landlords were reluctant to let to claimants.30

Inside Housing magazine of 24 April 2009 reported on a survey conducted by the homelessness charity, Crisis, in which 180 councils and voluntary organisations were surveyed on the impact of the LHA. 82 per cent of respondents said claimants were falling into arrears or having their tenancies ended as a result of direct payments. A further development involves tenants with overdrafts having their LHA payments “swallowed up” or “frozen” when paid into their accounts, leaving tenants unable to pay their rent.31

The May/June 2009 edition of UK Landlord Magazine carried an article entitled “Local Housing Allowance is not working” in which it highlighted landlords’ difficulties in ensuring prompt rent payments as a key concern. According to research by the National Landlords’ Association (NLA) 52 per cent of its members who responded to a survey said that the LHA had made them less likely to let to new Housing Benefit claimants. There is a lack of confidence that tenants will pass on rent payments to them and a recognition that sometimes this is beyond the tenant’s control (i.e. where banks use the money to clear an overdraft). The article raises the issue of potential homelessness:

Many landlords rely on prompt rental payment to meet mortgage commitments. If the rent is not paid, resulting in mortgage arrears, then repossession becomes a possibility. This places tenants at risk of eviction and homelessness.32

The NLA is called on the Government to:

…restore the old housing benefit rules and direct their energies to making the system work correctly. If this is not possible, politically, they urgently need to make some important changes to the way Local Housing Allowance is administered.33

The changes the NLA would like to see include:



More flexibility/discretion for authorities to pay rent to landlords from the outset of the claim.



A reduction in the period of the accumulation of arrears which prompts automatic direct payment to landlords from eight to four weeks.



Greater links between local authorities and local deposit guarantee schemes so that each new LHA application is accompanied by a deposit guarantee bond.



A requirement on local authorities to apply consistent criteria in determining tenants’ support needs, particularly when assessing vulnerability.

In June 2009 the Labour Government responded to a PQ requesting a review of the rules on direct payments with a view to allowing local authorities more flexibility: 29 http://england.shelter.org.uk/news/january_2009/lha_poverty_trap_warning

30 Roof Magazine, “In the LHA ghetto”, March/April 2009

31 Inside Housing, “Banks freeze tenants’ accounts”, 24 April 2009

32 UK Landlord, Local Housing Allowance is not working, May/June 2009

33 ibid 11

Mr. Burstow: To ask the Secretary of State for Work and Pensions if he will review the rules governing the payment of housing benefit to landlords to allow greater flexibility.

Kitty Ussher: Local housing allowance was rolled out nationally in April 2008 for customers in the deregulated private rented sector who make a new claim for housing benefit, and for existing customers who move address. It is a way of calculating the rent element of housing benefit based on the area in which a customer lives and their household size. Local housing allowance is paid to the tenant rather than the landlord in most circumstances.

We believe that local housing allowance is a much fairer, simpler and more transparent way of calculating housing benefit. One of the key features of local housing allowance is that where possible the benefit will be paid to the customer, so that they can take more personal responsibility for their housing, helping to prepare for when they move into work.

We accept that it is not possible in every case to make the payment to the tenant and, once the local authority has determined a maximum rent in accordance with the relevant regulations, payments are therefore made to the landlord in the following circumstances:



when the tenant is unlikely to pay (for example, where the local authority knows from past experience that the tenant is likely to abscond with the rent payment); or



when the tenant is likely to have difficulty in managing their rent payments; for example, due to an alcohol/gambling/drug dependency or because of a serious medical condition such as Alzheimer’s disease; or



when the tenant is in arrears of eight weeks or more.

Local authorities may make payments to the landlord where they consider that the claimant is likely to have difficulty in paying their rent and it is in the interest of the claimant to do so. We therefore encourage landlords not to wait for the eight-week period to be reached but to contact the local authority as soon as a payment is missed so that they can begin gathering the evidence required to make a decision on direct payment.

We are satisfied that these safeguards will ensure that vulnerable customers do not fall into unmanageable difficulties and that their rental payments will be met.

Local housing allowance was introduced in nine pathfinder authorities in 2003-04 and was subject to extensive and independent evaluation. A further nine authorities implemented the scheme in 2005 to test operational readiness.

Despite landlords’ initial fears, there is overwhelming evidence that customers have responded extremely well to the responsibility of managing their rent payments. Evidence from the evaluation has shown that customers regard paying the rent as a matter of prime importance and that most would prioritise this above all other payments. 84 per cent. of tenants are successfully managing their own housing benefit. Of the remaining 16 per cent. only a third are having their housing benefit paid to the landlord because they have fallen into arrears of eight weeks or more. Two-thirds are having their benefit paid to the landlords because the local authority, working together with landlords, has identified that they might not be able manage their rent payments. The local housing allowance evaluation reports are available on the DWP website at:

12

http://www.dwp.gov.uk/local-authority-staff/housing-benefit/claims-processing/local-housing-allowance/evaluation/

We are closely monitoring how the local housing allowance scheme is working in practice and will undertake a review during the first two years of operation following national rollout.34

On 10 November 2009 Helen Goodman responded to a similar PQ concerning the impact of direct payments:

We are satisfied that these safeguards will ensure that customers do not fall into any unmanageable difficulties and that their rental payments will be met. The Department is closely monitoring how the local housing allowance is working in practice and is undertaking a wide ranging review of the scheme over its first two years.35

As noted in sections 1.2 and 5 (below) of this note, the DWP revised parts of its LHA Guidance Manual to respond to some of the concerns raised by landlords and bodies such as Shelter and CRISIS, in December 2009.36

The Work and Pensions Select Committee carried out an inquiry over 2009-10 on the Local Housing Allowance which considered, amongst other issues, the impact of the direct payment of HB to tenants. While submissions from landlords indicated that problems with rental payments had increased, others, such as the Centre for Research in Social Policy at Loughborough University, found that all but a few claimants “were managing their rent and making payments to their landlord.” The Committee concluded that evidence on the effect of direct payments on rent arrears was “mixed” and recommended that the DWP should carry out an in-depth study to gain a clearer picture of the scale of the problem.37 While recognising that direct payments are the most controversial aspect of the LHA, the Committee supported direct payments to tenants as the default option “as long as the necessary financial advice and vulnerability safeguards are in place” –

Managing one’s own finances is an important step towards personal responsibility and financial inclusion and, through this, readiness for work. There is evidence that giving tenants the choice of having rent either paid to them or the landlord would defeat this important objective of the scheme and help perpetuate benefit dependency.38

Evidence submitted to the Committee also raised issues around the lack of consistency amongst authorities in identifying potentially vulnerable claimants at an early stage (these clients can continue to have their rent paid direct to the landlord):

105. Shelter research into practice at around 50 local authorities has found a lack of consistency across local authorities in defining vulnerability, as well as disparities in the application process and accessibility of information and guidance.109 Shelter states that a DWP survey found that only 55% of local authority staff had received any training to make determinations about whether a claimant needed safeguards to be applied to their case.

[...] 34 HC Deb 2 June 2009 cc387-8W

35 HC Deb 10 November 2009 c296W

36 HB/CTB Circular A26/2009

37 Work and Pensions Select Committee, Fifth Report of 2009-10, Local Housing Allowance, HC 235, March 2010, para 95

38 Ibid p3 13

107. The National Landlords Association states that lack of transparency and consistency both across and within authorities in identifying vulnerable claimants is inadequate for two reasons: “Landlords typically have to deal with more than one local authority and are left confused by procedures and rules that vary for no explicit reason; and it is unclear whether local authorities are taking into account current best practice in determining their local procedures”.39

The then Minister advised the Committee that while the aim was to enhance personal responsibility, there was a need to identify vulnerable people and the Government wanted to ensure that local authorities have the tools at their disposal to do this as well as possible. He made reference to issuing best practice guidance to authorities. The Committee welcomed this assurance and emphasised that the onus should not be on the claimant to inform the authority that they are vulnerable.40

The Committee also highlighted the need for authorities to use their discretion over how to pay LHA to claimants as not all are able to open bank accounts. The Committee supports arrangements that would allow LHA to be paid into the Post Office Card Account.41

The Committee called for the first payment of LHA (which is paid in arrears) to be sent in a cheque to tenants but payable to the landlord to “give the tenant time to get used to the new scheme and provide the landlord with some confidence in receiving the payment.”42 It also called on the DWP to review the payment cycles of LHA “to avoid unnecessary burden on claimants and to reinforce the financial capability agenda.”43

Submissions to the Committee argued that the dedicated funding for financial advice to claimants in the pathfinder areas had not continued after the national roll-out and that “the absence of specific funding arrangements has undoubtedly prevented a more dedicated support service aimed at arrears prevention from being developed.”44 The Committee recommended that the need for additional advice services to help claimants should be monitored.45

See section 6 (below) on possible reforms to the system of direct payments.

5

Rent arrears: advice for landlords

If 8 weeks of rent arrears have built up a local authority will arrange to make payments direct to the landlord unless it is not in the customer’s overriding interest to do so.

However landlords are encouraged not to wait for the 8 week period to be reached before contacting the local authority. The 8 week provision is significant as under Schedule 2 of the Housing Act 1988 (as amended by the Housing Act 1996) a landlord may be able to terminate an Assured Shorthold Tenancy Agreement when at least eight weeks rent is unpaid and the rent is payable weekly or fortnightly.46 39 ibid

40 Ibid paras 113-114

41 Ibid paras 68-70

42 Ibid para 73

43 Ibid para 78

44 Ibid para 83

45 Ibid para 86

46 DWP, Local Housing Allowance questions and answers

14

The 8 week period triggers mandatory payments to the landlord; it is possible for authorities to exercise their discretion to pay benefit to the landlord before this trigger point is reached. When giving evidence to the Work and Pensions Select Committee the Minister said:

[...] the local authority should be alert to any signs of rent arrears, and of course the landlord is perfectly at liberty to tell the local authority as soon as there are signs of any trouble and, at the outset of a claim, of course the local authority can pay the landlord while the investigations are taking place on the safeguards, so I think there are quite a few procedures in place to ensure that there is an approach taken by the local authority that will help prevent serious arrears mounting.47

Some landlords have experienced difficulty in getting councils to meet the requirement to pay HB direct where there is disagreement over the contractual date for the payment of rent. On receipt of a request for direct payment councils referred to paragraphs 6.86-89 of the Local Housing Allowance Guidance Manual which stated:

The DWP takes the view that a person cannot be in rent arrears in respect of a period that has not yet been served.

In Doncaster v Coventry City Council, First Tier Tribunal,48 the landlord requested direct payment from the council on the grounds that it was 8 weeks overdue. The council claimed that the rent was not 8 weeks overdue. The tribunal judge, Mr CJ Jones, concluded:

...rent is in arrears once the contractual date for payment has passed irrespective of whether rent is due in advance or in arrears. Regulation 95 of the 2006 (Housing Benefit) Regulations refers to a liability to pay rent and the liability in this case is to pay rent in advance.49

This ruling was welcomed by landlords. In addition, the DWP has responded by amending the guidance on the operation of the eight week rule:

13. There is no definition in regulations as to how the eight weeks’ arrears should be calculated but we included a note in the original LHA guidance to the effect that the ‘DWP takes the view that a person cannot be in arrears in respect of a period that has not yet been served.’

14 In a recent appeal tribunal (Doncaster v Coventry City Council, First Tier Tribunal 032/09/00932, 5 October 2009) the Chairman expressed the view that ‘Rent is in arrears once the contractual date for payment has passed irrespective of whether rent is due in advance or in arrear’. A number of you have asked us to clarify the Department’s position.

15 The intention behind HB regulation 95(1)(b) is to provide landlords with the security of direct payment as an alternative to seeking possession on a mandatory ground and so avoid a situation arising where a tenant is evicted under Housing legislation. In view of this, we have consulted with lawyers at Communities and Local Government to establish at what point they consider a tenant to be in arrears of eight weeks. As they are also of the view that rent is in arrears once the date for payment has passed 47 Work and Pensions Select Committee, Fifth Report of 2009-10, Local Housing Allowance, HC 235, March 2010, para 102

48 032/09/00932, 5 October 2009

49 ibid 15

without any payment being made, we have revised the LHA guidance so that it is consistent with this position.50

Private landlords are responsible for carrying out full checks on prospective tenants and reassuring themselves of the reliability or otherwise of the people they let to. Where a claimant is entitled to HB and fails to meet their rent payments the landlord has the same options available as if the tenant were working and ineligible for HB, i.e. to pursue eviction action and sue for rent arrears. Local authorities have no responsibility towards private landlords who incur rent arrears when they let to HB claimants except where the arrears reach 8 weeks (see above).

6

Labour’s consultation on Housing Benefit reforms

In December 2009 the DWP under the Labour Government published its consultation document, Supporting people into work: the next stage of Housing Benefit reform, which set out various proposals to reform Housing Benefit to complement the then Government’s “wider welfare programme by supporting people to move into work.”51 The paper acknowledged that some problems had arisen as a result of the direct payment of Housing Benefit to tenants:

6.8 The direct payment of Housing Benefit to customers is an important component of our reforms to the system. Direct payments provide customers with the responsibility for handling benefit payments, and paying their rent, which they will need when moving into work. Many customers now operate bank accounts successfully—in many cases for the first time—as a result of this responsibility.

6.9 However, some stakeholders have raised concerns about the operation of direct payment of Local Housing Allowance to customers and we know that, in some cases, safeguard procedures are not being operated well enough. This is why we are working with local authorities to improve the guidance which helps them make decisions and to improve the quality and consistency of the decisions themselves.52

The paper floated the idea of returning an element of choice to claimants which would enable them to opt to have their benefit paid direct to the landlord. In return for receiving direct payments of benefit landlords might be required to meet certain minimum quality or energy efficiency standards:

6.11 The standards could include the Energy Performance Certificate Ratings, the Housing Health and Safety Rating Systems, operating in England and Wales, or the Repairing Standard—a standard for the repair of private rented accommodation in Scotland.

The specific questions posed in the consultation paper included:



Should Housing Benefit entitlement be conditional on property meeting certain standards?



Should a direct payment to the landlord be linked to the property meeting a certain quality or energy standard?53 50 HB/CTB Circular A26/2009

51 Cm 7769

52 Ibid p32

53 ibid 16

The consultation period closed on 22 February 2010.

The Work and Pension Committee’s inquiry into the LHA (March 2010) rejected the idea of linking choice over Benefit payments with energy efficiency standards:

60. We seriously question the Government’s suggestion to re-introduce tenant choice as to whether the payment is made to them or to the landlord under the condition that energy efficiency standards are met. We believe that this proposal would undermine a number of important objectives for LHA. It would bring back administrative burdens and benefit complexity just removed by the scheme and, most importantly, would undermine the objective of removing barriers to work as set out above. We agree with the witnesses to this inquiry who argued that standards should be improved and energy efficiency targets met, but looking at the objectives behind LHA we think that trying to achieve this through LHA would do more harm than good.54

8 Coalition Government policy

The Coalition Government announced some significant changes to the calculation of LHA rates as part of the June 2010 Budget and the October Spending Review (see SN/SP/5638). These changes will have the overall impact of reducing LHA rates, leading private landlords to question whether, when claimants’ entitlement is reduced, they will suffer further rent shortfalls. Andrew Stunell responded to a PQ on the Coalition’s policy on direct payment of LHA:

Paul Uppal: To ask the Secretary of State for Communities and Local Government whether his Department provides support for landlords dealing with tenants in receipt of rent allowance who fail to pay their rent. [19007]

Andrew Stunell: Payment of housing benefit can be made directly to landlords where there are rent arrears and landlords should approach their local authority in these circumstances. The issue of housing benefit being paid directly to tenants is being looked at as part of the Department for Work and Pensions review of the first two years' operation of the local housing allowance. The review is due to report by the end of the year. Landlords have powers to seek possession through the courts on the grounds of non-payment of rent.55

7

The social housing sector

In Building Choice and Responsibility: a radical agenda for Housing Benefit the Labour Government stated that the gradual introduction of a standard rate element into Housing Benefit would eventually be applied to the social rented sector. The ending of direct payments for social rented tenants would have significant implications for these landlords in terms of systems and dealing with arrears. Council tenants receive their HB as a rent rebate and their rent accounts are adjusted accordingly. Therefore, council tenants never have their HB entitlement paid directly to them. Registered social landlords (RSLs), the other main providers of social housing, invariably require any HB entitlement that a tenant may have to be paid direct to them by the local authority. 54 Work and Pensions Select Committee, Fifth Report of 2009-10, Local Housing Allowance, HC 235, March 2010, para 60

55 HC Deb 26 October 2010 c184W 17

Respondents to the consultation paper, A new deal for Welfare: Empowering people to work,56 highlighted several difficulties associated with this proposal:

“We believe that as a general principle, the LHA approach should be extended to the social sector. However, a range of complex issues need to be addressed when considering how this might be achieved …” Housing Corporation

“Although we support the principle of extended LHA to the social housing sector, we believe that any roll-out must proceed with extreme caution. The relatively high proportion of … vulnerable people in social housing could result in widespread financial instability for both tenants and landlords.” Tenant Participation Advisory Service

“In terms of the flat-rate element of LHA, Citizens Advice can see no merit in introducing this in the social rented sector …” Citizens Advice

“We are strongly against introducing a flat-rate for the social sector.” Shelter

“The introduction of LHA would have serious negative consequences for the sector.” Council of Mortgage Lenders57

In the light of responses received the then Government decided not to take forward legislation to introduce the LHA for social tenants at that stage.58 This was welcomed by the social housing sector. However, there is a desire to improve work incentives amongst social sector tenants and, as with private tenants, the then Government wanted to encourage tenants to take greater personal responsibility for managing their own rent payments. The 2007 Welfare Reform Act contains provisions ‘to provide powers to extend financial responsibility to tenants in the social rented sector.’59

The potential difficulties with direct payments to social housing tenants identified by social landlords include:



People on a low income using the HB payments to cover other bills instead of prioritising rent payments;



Increased administration costs to deal with the predicted increase in rent arrears and the need to provide financial advice to tenants;



Expected difficulties in collecting the payments due – exacerbated by the difficulties low income groups experience in opening bank accounts;



The knock-on effects of a cash shortfall from rising rent arrears and administration costs – preventing improvements in services to tenants. A significant increase in arrears would leave some associations struggling to survive.

The DWP’s December 2009 consultation paper reiterates the intention not to press ahead with direct payments in the social housing sector:

The Local Housing Allowance is also paid, in most cases, directly to customers and any integrated provision would have to be paid in a similar way. But we recognise that this would be a major change for customers in the social rented sector. This is why we 56 A new deal for Welfare: Empowering people to work, consultation report, DWP, June 2006, p.46

57 ibid

58 Welfare Reform Bill: Regulatory Impact Assessment, p.41

59 ibid, p41

18

19

have agreed not to press ahead with plans to extend the principle of direct payments into the social rented sector.60

To date, the Coalition Government has not issued a policy statement covering this issue. 60 DWP, Supporting people into work: the next stage of Housing Benefit reform, December 2009, Cm 7769, p36