Is the Benefit Cap a bigger risk to Social Housing Providers than Universal Credit?

Universal Credit has become the main topic of conversation for social housing providers, as there is concern across the sector how it may affect their rent roll and what percentage is at risk. However, the concern is arguably strangling debate and obscuring other risks. On the ground there are murmurs from practitioners that housing organisations have had their heads turned by Universal Credit and that they have misjudged the impending effects of the benefit cap on the housing sector.

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The DWP update in August showed that 63,000 families have been affected by the benefit cap so far, of which nearly a quarter have since started a working tax credit claim, indicating they have moved into work. Further research by the Institute of Fiscal Services estimates that half of all households subject to the cap are worse off by at least £46 a week. As many in the sector will acknowledge any reduction in income for those claiming benefits escalates the risk of the ability to pay rent in full and on time. Whereas with Universal Credit there is not a lowering in benefit payments just an amalgamation, what’s more many social landlords have had time to test and bed in processes that help manage and mitigate universal credit, due to its ongoing implementation. There is also a North South divide with the benefit cap too, with a lot more people affected by it in the South because of higher rent levels than in the North.

In Wolverhampton Universal Credit will come on stream in February 2016. Anne Herrmann, Project Manager for Welfare at Wolverhampton Homes explains their concerns: “We know that it (Universal Credit) will be slow to start with, and we are preparing our tenants and ourselves for the impact, we believe some people will face challenges in adapting to this new benefit, others will need a bit of help and yet others will sail through.”

Sarah Aldred, Income Manager at First Choice Homes Oldham(FCHO) believes the number of people that will be on Universal Credit will ‘far outweigh’ those on the benefit cap. “Universal Credit (UC) for me is the biggest challenge,” explains Sarah. “Currently we have around 360 cases (of UC), but it has been as high as 550.”

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However for Anne and Wolverhampton Homes they perceive the Benefit Cap to be the biggest challenge, with the announcements from the summer budget “proving to be a game changer,” according to Anne.

The impacts of the benefit cap, reducing from £26,000 per annum to £20,000 has wide reaching ramifications according to Wolverhampton Homes. “The number of families now needing to contribute to their rent is reckoned to increase tenfold,” according to Anne. “That coupled with the wider impacts of reductions in tax credits, mean that for some families and individuals, next year presents multiple impacts. From our experience with the bedroom tax, we know that these changes will reveal support needs, which further impact housing organisations resources. To do this effectively, we will need to manage our core functions, such as rent collection, more effectively than ever.”

The transient nature of Universal Credit is troubling many in the sector, and this is illustrated by Sarah Aldred’s experiences at FCHO. “Many going back into work (off UC) are straight onto zero hour contracts, so typically each week their income changes, which impacts any benefits they receive. In our experience it is when people switch regularly between UC and work that rent payments start to be missed. And when universal credit is fully implemented we expect to have around 4,500 claiming UC in Oldham, this will then have a significant impact on our operations and revenues. We have reviewed our processes and operations and will continue to do so to ensure our rent collection is optimised and as efficient as possible.”

There are of course always different opinions about which welfare reform act is the most divisive and of course different acts will impact different social landlords in varying ways. But what cannot be disputed is that the current welfare reform has changed the housing sector. The environment in which it operates has been transformed and it is imperative that HA’s, ALMOs and councils reform their operations to meet the challenges of ongoing welfare reforms that are impacting their revenue streams.