Universal Credit: Proposal for Direct Payments trigger

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1 Universal Credit: Proposal for Direct Payments trigger DWP has accepted that if the housing element of UC is to be normally paid directly to claimants, there needs to be a mechanism allowing payment to be made directly to the landlord once arrears reach a certain point. The issue is to decide at what level this trigger should be set. This is a delicate balancing act. Too high a trigger risks affecting landlords income streams and means that claimants may run up levels of arrears that they have no prospect of clearing in a reasonable time; too low a trigger means that claimants may be switched to direct payments after only relatively modest shortfalls in rent or only minor delays in payment. DWP has outlined a number of possible mechanisms. It is worth pointing out that most of these are relatively favourable compared with what the sector thought likely when this process began. Of the DWP mechanisms, all involve a set amount defined as the equivalent of rent due over a defined time, e.g. one month. In addition, some of the mechanisms also involve an alternative trigger based on persistent rent shortfall over a period of time. There was a majority view among NHF and CIH members responding in favour of a single mechanism stipulating a set sum based on a defined period s arrears. Expressing the sum as the rent due over a time period (rather than in cash terms) fits with landlords arrears procedures and avoids any need to adjust the figure to take account of inflation or variations in rent levels. This preference is based on the need for a simple, easily definable trigger that can operate as automatically as possible. Members views on the threshold ranged between two months rent and half a month s rent. We propose one month s rent. Although this is a simple proposal in principle, it needs to be defined with slightly more precision. For the purposes of the trigger, we are defining arrears as being an amount of rent that is overdue by at least one tenancy period. The aim of this definition is to provide for broad equality of effect between weekly and monthly tenancies. In addition, we propose a payment window after the threshold is met, recognising that although rent is normally due in full in advance at the beginning of each tenancy period, it is likely that in practice under Universal Credit tenants will make payments at different points in the month. Our exact proposal is that the trigger should be available to the landlord at any time that two conditions are both met.

2 1. Arrears (that is, the cumulative value of all rent that is overdue by at least one tenancy period) are equivalent in value to, or greater than, one month s rent. 2. These arrears have continued to be equivalent in value to, or greater than, one month s rent for at least 14 consecutive days since that point was reached. A number of practical and policy considerations have arisen in relation to this proposal. Operational background Although UC will be paid monthly, the great majority of social housing rents will be debited weekly and the system has to allow for this. But it also has to allow for the significant minority of social housing rents that are debited monthly (or, in a few cases, fortnightly or four-weekly). The trigger should be flexible enough to be expressed in months or weeks, depending how the landlord calculates rent. For weekly or fortnightly tenancies, four weeks arrears should be taken as the closest equivalent to one month. This will have minimal impact on how the trigger operates in practice, but will make it considerably easier for landlords to administer. Technical arrears The technical arrears issue that the DWP has raised is addressed by the requirement that rent must have been due for at least a tenancy period for the purposes of the trigger threshold, together with the 14-day payment window, which will ensure that the landlord always has an opportunity to address non-payment before the trigger is reached. We have avoided use of the term technical arrears. Timing issues The tenancy agreement will normally provide that payment for each tenancy period is due in full no later than the first day of that period. This means that a monthly tenant pays the rent in full, but a day later than it was due, the tenant is, legally, in arrears by the cash equivalent of a month s rent during the time the rent was outstanding. Obviously it would be unreasonable for this small delay to trigger payment to the landlord. Late payment of rent is a management issue with which social landlords will be familiar and one that is by no means confined to tenants claiming welfare. Temporary arrears arising in this way should not be regarded as technical but they are an inevitable feature of pragmatic management of low-income tenants and should not necessarily trigger UC payment to the landlord. Given the monthly payment cycle of UC as well as the increasing prevalence of monthly payment of wages, occupational pensions, etc., we suggest that it should be recognised that in practice rent may sometimes be paid as much as one month after it formally became due. The intention is to produce approximately equal treatment for weekly and monthly tenancies. This is addressed by a combination of the requirement for arrears to amount to at least a month s rent (which means that in a weekly tenancy will require

3 several missed payments to reach the required level of arrears) and the requirement that rent be overdue by at least one tenancy period (but for which, the trigger would be met for a monthly tenancy immediately a single payment is missed). Even where arrears have reached the equivalent of a month s rent, and have been overdue by a whole tenancy period, the landlord should still be expected to engage with the tenant to resolve the issue. We suggest that a further 14-day payment window makes reasonable allowance for this. In practice, for both weekly and monthly tenancies, this means that if the tenant stops paying the rent altogether, the trigger becomes available about 7 weeks after the first missed payment was due. Implementing the trigger We propose to make explicit something that we feel is already implied in the DWP proposals, namely that the actual implementation of the trigger, once it is available, is a matter for the landlord. This will allow the landlord discretion in a case where it considers that its normal recovery procedures can resolve the arrears. This would not prevent the landlord from implementing the trigger later on, provided the requirements were still met. The fact that the trigger has to be implemented by the landlord means that it needs to be based on information that is in the landlord s possession. The trigger we propose meets this requirement: all the landlord needs to know is how much rent is due, and when; and how much has been paid, and when. Specifically, the trigger does not require the landlord to know on what date during the month the tenant s UC is paid; although it is recognised that landlords will normally know this, incorporating the UC date into the trigger would be an additional complication that our proposal avoids. We argue strongly that when the trigger is available and the landlord implements it, the process should be as automatic as possible. We do not agree with DWP s suggestion that the tenant should be asked formally to agree that the details supplied by the landlord are correct; such a mechanism involves uncertainty and delay, and might be deliberately exploited by some tenants as a delaying tactic. But we agree there will have to be a notice generated by DWP to advise the claimant of the impending change in the way UC is paid. This should be a simple notification: it should not invite the claimant to object, nor should it require any acknowledgment or response. However, it should give the reason for the change. This will allow the claimant to contact DWP in the (vanishingly rare) case where rent is being legitimately withheld or in the (probably more common) case of a genuine error (e.g. where DWP identifies the wrong claimant, or where the landlord thought the trigger was available because it had erroneously credited the claimant s rent payment to a different account). Even if the claimant raises an objection, payment to the landlord should still go ahead as notified; in the very rare cases where this proves to be incorrect, the matter can be rectified retrospectively.

4 It is important that the trigger should be available not only at the point that the threshold is reached but at any time that the threshold still applies. This means that if the landlord fails to implement the trigger immediately, either through oversight or because it thinks it can resolve the problem through normal recovery processes, it can implement the trigger later if the requirements are still met. This also means that the trigger will be available in cases that enter the UC system with existing arrears, provided they meet the threshold. In addition, any case that enters the UC system with an existing possession order on grounds of rent arrears, suspended on rent-plus terms, the housing element should automatically be paid directly to the landlord cases so long as any arrears are outstanding, regardless of the amount (i.e. the normal thresholds should not apply). DWP data sharing and landlord awareness of UC claims Some members have made the point that they may not know that the tenant is on UC. It is not yet clear that DWP will be willing to share this information and it is worth noting that formally, under existing rules, landlords have no right to know that a tenant is claiming HB. However, in practice, landlords are almost always aware of HB claims but the absence of routine direct payment arrangements means that the same may not be true of UC. However, if arrears arise the landlord will seek to engage with the tenant through its usual procedures and the tenant is likely to inform the landlord about the UC claim. In the last resort, if the tenant withholds the information and DWP does not provide it, the case would simply be dealt with through normal arrears procedures, potentially leading to possession action. Clawback and switchback Although the DWP paper makes no explicit reference to clawback of arrears, the UC regulations provide for a clawback of 5% of the relevant standard allowance. At current rates this works out at a monthly sum of: single claimant aged under 25 single claimant aged 25 or over joint claimants both aged under 25 joint claimants where either is aged 25 or over These are modest amounts. For instance, two months arrears for an affordable rent property could easily amount to 1200, which a couple (at least one of whom was over 21) would take a more than four years to repay.

5 We also argue that once payment to the landlord has been instituted, it should remain in place until the arrears have been cleared in total. It should not be enough merely to bring the arrears below the trigger threshold, because this would create the possibility that payments might repeatedly switch between landlord and the claimant as the arrears fluctuated either side of the threshold. Moreover, tenants will have a much better chance of successfully moving back on to direct payments if they do so with a clear rent account. This gives them the best possible opportunity to develop a payment habit, before they are in danger of hitting the trigger point again. National Housing Federation Chartered Institute of Housing Community Housing Cymru 1 March 2013