Welfare Reform and Work Bill

Baroness Hollis of Heigham Excerpts

Wednesday 27th January 2016 Lords Chamber

[Lord Kerslake (CB)]

My Lords, I declare my interest as chair of Peabody and president of the Local Government Association. I support Amendment 50 and wish to speak specifically to Amendments 53, 61 and 63. I will keep my comments brief as I am conscious of the hour.

I add my welcome to the movement and the moratorium referred to by other noble Lords. This is a demonstration of the Government listening and acting, which I welcome. I reinforce the importance of taking early decisions and not using the whole year for the review process, not just because of the uncertainty for existing schemes but for investment in new schemes that are so desperately needed.

Amendment 53 follows on from the debate we had in Committee, when we debated the very abrupt move from the 10-year plan of CPI plus 1% for rent increases to a four-year period when there would be a 1% reduction per annum. We had a considerable debate on what the impact of that change of policy would be. In tabling an amendment in Committee, I was ever hopeful that after the four-year period the Government might return to the original 10-year plan. However, the noble Baroness, Lady Williams, made it clear that that was not the Government’s intention and that they would take a decision on future rent movements in four years’ time. Given the difference of view on this issue, with the Institute for Fiscal Studies clearly saying that there will be a loss of housing association new build as a result of this policy and the Government’s view that the figure will be absorbed through efficiencies and reductions in surpluses, it seems to me imperative that an evaluation is undertaken before policy is set in four years’ time. I emphasise that it should be an evaluation, not simply monitoring the existing policies, and that that evaluation should be independently commissioned.

There is plenty of precedent in government for doing this—for example, with the new homes bonus, where such an independent evaluation was produced and published, and, indeed, influenced government policy on the bonus going forward. It is good practice for government when they introduce such a significant change to not just monitor the impact of that change but to evaluate its impact in the widest sense. That is why I think this amendment is so important. I would like to hear from the Minister what the Government’s view of this is but also how they expect to assess this impact.

Amendments 61 and 63 come together because they relate to social rents and affordable rent. I take very seriously the debate we had yesterday on the Housing and Planning Bill, and particularly the Minister’s view that we should do everything possible to maximise new housebuilding in this country. I endorse that view, whatever that new housing happens to be. This issue is specifically about new build schemes and the flexibility there has hitherto been for setting rents at the commencement of those schemes. This relates not to the viability of the housing association but to the individual schemes. It is why I have tabled the amendments which perhaps require a bit of elaboration.

When a housing association considers its investment programme in new supply, it looks at two things. First, it looks at its wider viability as a housing association and the risks attached to the scale of the programme it is undertaking. The second thing is to look at the viability of the individual scheme before it commits to it. In some cases the scheme will be highly viable and profitable and would go ahead regardless of this rent reduction. In other cases there will be schemes that were not viable before and with the rent reduction would most certainly not be viable now.

However, there is a small but important group of schemes which are on the margin of viability, with risks that are evenly balanced. Having the flexibility to start the rent at a slightly different point at the time the scheme starts will crucially influence whether those schemes go ahead and whether they do so now. This is the particular issue that I am focused on. It will not be a big cost but the numbers could be important. Given the crisis that we face on housing, “every little helps”. I hope that Ministers will hear this point and retain that flexibility. The small cost that is involved will be far outweighed by the confidence it gives to housing associations to go ahead with their schemes. I urge the Government to consider this carefully.

[Baroness Hollis of Heigham (Lab)]

My Lords, I have a brief comment and a brief question.

I support everything that the noble Lord, Lord Kerslake, has said. On Amendment 53, I urge the Minister to take seriously the need for housing associations to be able to plan their building programme and their revenues more than three to four years ahead. The viability of their bank covenants depend on that, and, therefore, their capacity to manage new investment. If there is a query as to whether this 1% rent reduction will be continuing in three years, in whatever form, there will be a serious question mark over the Government’s ability to meet their goal of affordable housing through the social landlord sector.

I urge the Minister to take that amendment very seriously. Some of us have been engaged in negotiations with banks worried about there being no direct payments and therefore tenants having to pay rent out of their UC. They were worried that this would destabilise the rent roll and asked if they could refloat their loans at X, Y or Z. Some of us have already been through that and banks are quite willing to inflate a risk in order to get the revenue returns they would like to see on their covenants. Therefore, the more predictability the Minister can give us, the better. I hoped we would have a clear line, and that after 2019-20 this would stop. If it does not, housing associations and local authorities will have real difficulty in managing their business plans.

Like everyone else I welcome the one-year suspension of the 1% rent reduction in the social rental and supported housing sector. Can the Minister tell me how that will end? Does he expect to notify the House by virtue of an SI? In other words, will he say to the House that from this point on this accommodation will, as a result of this review, be expected to have a 1% rent reduction? Will the Government claim financial privilege, given that it will be a financial measure, so that this House will find it very difficult to discuss it and, possibly, ask the other place to reconsider?

--- Later in debate ---

[Earl Cathcart (Con)]

My Lords, as the noble Baroness, Lady Meacher, has just said, under the old housing benefit scheme the tenant had the choice of the payment going to him or directly to the landlord. The Minister said that, under the new scheme, the,

“position is for universal credit to be paid as a single monthly sum direct to the claimant; that is designed to mirror what would happen if the claimant was in full-time employment, when they would be responsible for managing their own funds and paying their own rent”.—[Official Report, 21/12/15; col. 2438.]

In an ideal world that is an excellent idea, but in the real world it invariably does not happen. As a landlord, I can foresee that when the tenant receives the universal credit, the temptation will be to buy the weekly shopping, petrol, clothes and so on, and by the time the rent becomes due there will not be enough money left, so the spiral of debt takes hold. But the Government are adamant that paying universal credit only to the claimant not only will work but does work. Is this experiment working as the Government say it is?

According to a survey conducted by the Residential Landlords Association, it is not. It found that of those private sector landlords who had tenants on universal credit, some 63% had tenants in arrears on their rent—a point just made by the noble Baroness. Of that group of landlords, 85% had contacted the Department for Work and Pensions to have the housing element of the universal credit paid direct to them after eight weeks of arrears, as is their entitlement. More than 57% of that group said that it had taken the department more than five weeks to respond to the request, which means that the landlord is already more than three months out of pocket. I understand that the problem is even worse for social housing, with nearly 90% of tenants in arrears. It is heartening that the Minister said in Committee that,

“we are doing a lot of work now with social landlords to get the problem under control”.—[Official Report, 21/12/15; col. 2437.]

At least my noble friend admits that there is a problem and that the new system is not working quite as planned. Much of this could have been avoided if the rent had been paid direct to the landlord.

In October 2012, a survey of more than 1,000 landlords carried out by the Residential Landlords Association and the Scottish Association of Landlords found that more than 91% of landlords were less likely to rent to tenants on benefits as a direct result of the decision not to allow payment of the benefits direct to the landlord. Not making the payment direct to the landlord is not helping the landlords and it is certainly not helping the tenants. All the evidence, backed by Shelter, Crisis and the Money Advice Trust, has been that paying it direct to the landlord was popular with tenants, as they were assured that their rent was covered before they decided how else to spend their money.

If the Government really want to make tenants,

“responsible for managing their own funds and paying their own rent”.—[Official Report, 21/12/15; col. 2438.],

what better way than the tenant asking for the rent to be paid direct to the landlord? To my mind, that is the height of responsibility for the tenant: to ensure that the roof over their heads is paid for before deciding how to spend any remaining money.

[Baroness Hollis of Heigham]

My Lords, I strongly support the amendment moved so ably by the noble Baroness, Lady Meacher. This is a real problem. The previous proposals that we were given, and the previous explanations that we wanted to model on the world of work, frankly belonged to a different planet. Those tenants, particularly in social housing, who need housing benefit are not those, for the most part, who are paid monthly. They very often are on ZHCs, have insecure or short-time jobs, or have fluctuating incomes week by week. That is topped up by universal credit. They want and need the security of a home in order to continue often to be able to find the jobs that they want, which would give them greater security. If they seek direct payments to the landlord, why does the Minister think that the Government and the DWP can second-guess what is in their best interest? Why not treat them as moral adults who can make their own judgment? The result that we are already seeing and beginning to worry about is, given the refusal to give alternative payment methods until after six to eight weeks’ arrears, and the time of processing that, we can be talking about debts of more than £1,000, from which tenants never recover.

The alternative is to try to help tenants to find ways to bypass the rigidity of DWP. So we are busy setting up jam-jar accounts and other friends are busy trying to use credit unions in order to bypass the total universal credit going into the bank account where the bank then takes payments for any other outstanding debts or anything else. As a result, HB becomes the last thing to be paid to the landlord. Many are already experiencing those problems. Certainly, one local authority tenant said to me, “Well, I won’t worry about that because that will be the last thing that gets paid. The local authority won’t evict me. It costs them more to send me into temporary housing and, given that I’ve got kids, I can run that risk”. That is the mental framework. She said, “I would be perfectly willing if they took it at the beginning of the month. But if I put it in the bank, it will be gone by the end of the month before I pay the rent”.

I suggest that the Minister responds very positively to this amendment. Where the tenant seeks it, the department should agree that alternative payment arrangement and stop all the futile effort that so many of us are making trying to find ways to loop around the system, to overcome the rigidities of the department, to help tenants avoid what will probably be debts from which they will never recover. I hope that the Minister will take the words of the noble Baroness and the noble Earl very seriously. It is a real problem on the ground.

[Lord Layard (Lab)]

My Lords, the Government are great believers in the principle of “nudge” and have greatly expanded the nudge unit. The fundamental principle of nudge is that, by quite small differences in institutional arrangements, you can produce big differences in outcomes. One principle of nudge is to give people an opportunity to protect themselves against their worse natures. That is exactly what this is about: offering people an opportunity to protect themselves against their own weakness. It is difficult for me to understand why the Government are not willing to use this elementary psychological principle. Would the Minister consider consulting the nudge unit before insisting that this ideological line that is being pursued is consistent with modern psychology?

--- Later in debate ---

[Lord Freud]

This amendment requires the Secretary of State to make regulations that would allow universal credit claimants to opt to have the housing cost element of their award paid direct to the landlord, irrespective of the reason. One key principle of UC is that the single, monthly payment mirrors the payment of monthly wages that most claimants would receive if they were in full-time employment. Whether they are receiving UC or are working, tenants need to make similar decisions on managing their money, including paying their own rent.

The Government understand that a move to a single, monthly household payment is a significant change for many claimants and that some will require help and support. Regulations came into force in February last year to allow DWP to inform social landlords whenever one of their tenants makes a claim for or is awarded universal credit with housing costs or when an existing universal credit claimant moves to one of their properties. This enables the social landlord to decide whether the claimant requires advice, support or assistance in budgeting so that they can manage their rental payments.

There will, of course, be instances where the claimant needs additional support and, to this end, the Secretary of State already has powers to pay all or some of a claimant’s UC entitlement to a third party through alternative payment arrangements—or APAs, in the trade. There are three APAs: paying rent directly to the landlord; making more frequent than monthly payments; or splitting the payment within the household. APAs can be considered by the Secretary of State at any point during the universal credit claim, whether at the outset or later on, if a claimant cannot manage the monthly payment arrangement.

Recent improvements allow the landlord to email their APA requests, which are dealt with in a matter of days as a priority—so some of the early teething problems as we started rolling out the system have been addressed to speed up that process. Wherever possible, these arrangements are time-limited and delivered with appropriate budgeting support to help claimants make the transition to monthly budgeting.

The arrangement also covers claimants who are in rent arrears, and managed payments to the landlord will be considered where claimants have arrears of at least one month due to repeated underpayment or where the claimant owes arrears of at least two months and is at risk of eviction. These protections, combined with the measures enabling landlords to recover arrears from a tenant’s UC award, already mitigate any impact on landlords’ income or on homelessness.

We are in fact making a series of initiatives in this area and one of the most interesting is the trusted partner trials, where we are working with local authorities so that they decide the people who should be put on an APA, at least initially, and then look to see the budgeting support that a person needs to run their own funding.

Picking up the point made by my noble friend Lord Cathcart on experience, in terms of arrears we did an elaborate direct payment project and we found that, in the early stages, the numbers who paid in full were running at 95.5%, compared with 99% of those where the state paid. However, by the 18th payment—these were weekly payments in the comparator in this project—the direct payments figure had risen to 99%. Interestingly, this happened when the removal of the spare room subsidy came in, and those tenants who had become used to managing their own rent handled the removal of the spare room subsidy better than the ones who had been on the state-managed payments system. That is not surprising because the managed payments system is not necessarily an easy option where there are reductions for non-dependants, the spare room subsidy and so on, because the claimant will still need to pay the shortfall to the landlord.

The other factor, which I am surprised that noble Lords have not clocked, is that a large number of the families on universal credit are in work. It is not like the old legacy system where you have one lot out of work and one lot in work; this is a blended group and people are moving from the out-of-work group into the in-work group. Therefore, the idea that you can be halfway down the taper—in the jargon—and have a managed payment would be incredibly hard for any organisation, including the DWP and the tenant, to manage. Two million households is equivalent to a quarter of the case load.

[Baroness Hollis of Heigham]

The noble Lord makes our point for us. If a substantial number of people are in work and managing fine—as, indeed, is the case; it is one of the reasons for supporting UC—they will not seek alternative payment arrangements. Who will seek them? It is those who have the self-knowledge to know that they are vulnerable when it comes to paying their rent, given the pressure of debt payday loans and all the other debts they may accrue. If they are being hounded, as we know they are, what will go first is the money that should be earmarked for their rent. I urge the Minister not to superimpose on people who find it hard to manage assumptions about how those of us with rather more comfortable incomes and reliable monthly salaries handle our accounts. It can be a very different and very difficult world.

[Lord Freud]

The core reason why I dislike this measure—and I do dislike it, so it is not a question of persuading the Secretary of State—is that we can actually see this situation right now. Interestingly, my understanding from conversations I had with welfare rights people in the 1980s was that they were against managed payments because they disempower tenants. It is funny that the political debate has come full circle. If you say that tenants can choose but you have an imbalance of power between the landlord and the tenant, which is the reality, you will find very quickly that every tenant will choose to have a managed payment because they will be told by their landlords—who would love to have someone with an AAA credit rating paying them—“You must have a managed payment”. That is what has happened. Some 93% of people in social housing choose to have a managed payment. They are disempowered, which makes it hard for them to get back into work—I think the noble Baroness is shaking her head, as a landlord. You say lots of good things—

[Baroness Hollis of Heigham]

I have spent years in either local authority housing management or housing association management. I have represented, possibly unlike the noble Lord, a council estate—one of the largest in the city of Norwich—and day by day, week by week, year by year, we went knocking on doors. We know what we are talking about.