Benefit Cap (Housing Benefit) Regulations 2012

Lord McKenzie of Luton Excerpts

Tuesday 6th November 2012 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, these regulations will allow for the introduction of a benefit cap, as set out in Sections 96 and 97 of the Welfare Reform Act 2012. From October 2013, the benefit cap will form a key part of our plans for universal credit and we will shortly be bringing regulations to the House to support the introduction of this. However, we do not believe that it is right to wait until all existing claimants have migrated to universal credit before taking action. We are, therefore, bringing these regulations forward now, which will enable us to introduce the benefit cap from April 2013 by working with local authorities to reduce the amount of housing benefit in payment. The regulations are regarded as being compatible with rights under the European Convention on Human Rights.

The regulations set out the detail of the cap, including the level that it will be set at; how we will calculate a household’s overall entitlement to welfare benefits for the purpose of applying the cap; what benefits will be taken into account; how any reduction will be applied; exemptions from the cap; the relationship between the cap and benefit sanctions and other deductions; and rules on decision-making and appeals.

The level of the benefit cap will be set with reference to average earnings for working families. On its introduction in 2013, the cap will be set at £500 per week for couples and single parent households and £350 per week for single adult households. For couples and lone parents, that is a weekly income from benefits equivalent to earnings of £26,000 a year net or £35,000 gross. Exempting those entitled to working tax credit and setting the level on an earnings basis ensures that we incentivise work even further by not including in-work benefits in the cap.

This policy was debated at length during the passage of the Welfare Reform Act. On top of that, many noble Lords came to the briefing session that I ran for MPs and Peers before the Summer Recess. I am grateful for their input. Noble Lords will by now be well aware of the Government’s reasons for introducing a benefit cap. It is about incentivising work and promoting fairness. As it is currently designed, we know that we pay some claimants more money when they are out of work than they could reasonably expect to earn from working full time, making it hard for people to see that they are better off in work. We are trying to tackle this with the introduction of universal credit and, alongside it, the benefit cap. The core principle is that the state should not pay more in benefits than the average family earns from work.

We have said from the start that there are certain groups to whom it would not be appropriate to apply the cap. We are exempting households which are in receipt of disability living allowance, personal independence payment, attendance allowance and the support component of employment and support allowance, as well as households entitled to working tax credit and war widows and war widowers. Since the debate on the Welfare Reform Bill, the Government have announced some additional easements: namely, those relating to industrial injuries benefits and war disablement pensions and their equivalents under the Armed Forces Compensation Scheme.

We do not want to penalise those who have recently found themselves out of work and are doing the right thing to find new employment. Therefore, we have put in place a 39-week grace period for those who have been in work for the 12 months previous to losing their job. This will allow people time to find alternative employment or consider alternative options in order to avoid the cap. Following the point raised very helpfully by the noble Lord, Lord McKenzie, during the Welfare Reform Bill debates, we have made sure that this grace period will run from whenever a person’s job comes to an end, whether or not the job finished before or after the introduction of the cap. We have consulted with stakeholders and the Social Security Advisory Committee, which considered the regulations and subsequently consulted on the impact of the cap. This has informed our plans for evaluation. We have already announced that we will publish a review after the first year of operation.

It was inevitable that our proposal for a cap would raise concerns about how it would be delivered and the impacts it might have. Many of the concerns that have arisen around the cap are based on an assumption that people will not change their circumstances. We do not believe that this is right, although sometimes people will need help and encouragement to make these changes. In the run-up to April 2013 we are working with claimants who may be affected by the cap to do exactly that.

Since May this year, those households which may be affected by the cap have been offered support from Jobcentre Plus. To date we have written to over 85,000 claimants potentially affected by the cap. We have followed this up with over 150,000 phone calls to make sure that claimants understand what the benefit cap means for them and to offer them the opportunity to work with Jobcentre Plus for employment support or to speak to their local authority for housing advice. We are also engaging across government and with local authorities to ensure that households are given the assistance they need to avoid the cap or mitigate its impact.

This Government firmly believe that those in the local area are in the best position to make decisions which impact people in their locality. That is why we are providing up to an additional £75 million for discretionary housing payments in 2013-14 and up to a further £45 million in 2014-15. This will be divided among local areas based on which has the greatest need. It will be used by local authorities to support those claimants affected by the benefit cap who, as a result of a number of complex challenges, cannot immediately move into work or more affordable accommodation, providing support to those who need it most, such as those fleeing domestic violence, and to prevent homelessness.

Finally, the Government firmly believe that there has to be a limit on the overall levels of benefit it is appropriate for the state to provide to those who are not working. The benefit cap aims to encourage long-term positive behavioural effects through changed attitudes to welfare, responsible life choices and strong work incentives. I commend these regulations to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for the way in which he introduced these regulations. They will inflict profound hardship on many households—according to the department’s own impact assessment, nearly 60,000 households, including 80,000 adults and 190,000 children. Next year the average reduction in benefit is estimated to be some £91 a week. Our opposition to these regulations should be clear from consideration which took place just this morning in another place. It is clear, and has been since our debates on the Welfare Reform Bill, that a one-size cap never fits all—we believe that people should be better off in work than on benefit, but these regulations are flawed and likely, in our view, to increase homelessness with a likelihood also of the cap costing more than it would save.

Having said that, we welcome the commitment to the 2014 review and, as far as they go, to the categories of persons who are exempt from these and the limited DHP top-up—the loaves and fishes as they will for ever be known as a result of my noble friend Lady Lister. The Minister’s department says that it is giving early notice to all claimants who could be affected by the cap. We have heard that 85,000 claimants have been contacted, with 150,000 phone calls made, so that they can change their circumstances and perhaps move into work. In addressing the inequities of the underoccupation provisions, the Government expect households to cope with this loss of income by starting work, reducing non-rent expenditure, using other income and moving to cheaper accommodation or a cheaper area. Given the work which the department has done to identify those households affected, can the Minister tell us how many households have other income to ameliorate the effect of the cap, what types of income are involved and what the average amounts involved are?

Some 64% of those affected are claiming either ESA or income support; that is, they are not required to be available for or seeking work. Some 50% of the households likely to be affected are lone parents. The criteria under which people are characterised at the moment under the welfare system are stringent. They are not spurious, so on what basis is the department seeking to override these designations? Is the department seeking to differentiate between individuals for this purpose and, if so, on what basis? We know that some 5,200 affected by the cap are in receipt of carer’s allowance because the qualification for carer’s allowance depends, among other things, on a person not being gainfully employed. What advice would the Minister give to these households and what is their route to avoiding the impact of this cap?

So far as reducing non-rent expenditure is concerned, can the Minister tell us what the department’s detailed engagement with those affected has concluded to date? How many households has it assessed as having scope to reduce non-rent expenditure and what are the main types of expenditure involved? So far as moving to cheaper accommodation is concerned, we note that nearly half of the households affected—46%—are in the social rented sector. What cheaper accommodation does the Minister think can be accessed and how does he consider that local authority allocation policies, which would typically have a local connection requirement, will assist in these circumstances? As for uprooting and going to other areas, has any assessment of the impact of this on families been made, especially the consequences of fracturing local support arrangements with the impact on health and educational outcomes? From the work undertaken to identify those families currently likely to be affected by the cap, how many such households have someone with a mental health condition and how many occupy housing that has been the subject of a disabled facilities grant?

We are indebted to the National Housing Federation for its briefing notes and the points that it raises, which I would like to go over. So far as discretionary housing payments are concerned, it says that the announced increase to help people hit by the cap after losing their jobs is welcome but that it is not appropriate to rely upon a discretionary, time-limited scheme to cover ongoing and legitimate higher housing costs. Concerns have also been raised about the levels of DHP available. In its report on the impact of housing benefit changes, published this month, the NAO said:

“It is not clear how the current level of funding for Discretionary Housing Payments has been determined or whether it is likely to be sufficient for local authorities in tackling the impacts of reform”.

Perhaps the Minister can therefore give us a breakdown of those calculations and the assessment.

The issue of temporary accommodation has, I think, exercised a lot of people. The National Housing Federation says:

“Temporary accommodation is a vital part of the homelessness safety net. It saves money by minimising the need for more costly emergency interventions such as housing families in Bed and Breakfast accommodation. However, it is more expensive to procure and manage than mainstream private sector accommodation.

It is for this reason that the Federation has argued for it to be exempted from the benefit cap. Due to these additional costs, without an exemption from the cap, many families will find themselves unable to meet their rent.

Households are placed in temporary accommodation by local authorities and as a result will have little scope to move to reduce their housing costs. These families, who have been made homeless through no fault of their own, could be forced to move long distances or cut back on essentials in order to pay for accommodation which they themselves have not chosen”.

How does the Minister respond to that point? The federation goes on to say:

“The cost of exempting temporary accommodation from the cap is £30 million—a small proportion of the estimated £270 million savings expected to be gained from the imposition of the benefit cap itself”.

What is the Minister’s response to that? It continues:

“While Government has said that under Universal Credit it will fund the management costs, if not the housing costs, of temporary accommodation outside the benefits system—helping some families avoid the cap—this will not protect claimants before they transfer to Universal Credit”.

--- Later in debate ---

[Lord Freud]

I am trying to say that if you read the stories carefully, as I have been, you will see that they refer to preparatory moves about what councils may do and what they are preparing for. The stories are fairly evanescent, if you look at them closely. Clearly one reason for that is that these changes have not happened yet. Through this year, we have had the introduction of the LHA reduction from 50% to 30%, which my noble friend Lord German talked about. There has not been a huge flood of changes as a result of that. The stories are about councils being worried and their preparatory plans. They are about plans to move people around councils, but local authorities have always done that, for the reasons that I have given. They have always had this problem in London—people arrive and the councils have had to do something about them. Let me repeat the obligation in the 9 November regulations. Under the regulations, local authorities are required to keep people in the local area whenever they can and to carry out a full impact assessment before moving people out to other boroughs. We have strengthened that localism point in recognition of the same sentiments that are concerning noble Lords today.

[Lord McKenzie of Luton]

Could the noble Lord just remind us which regulations these are? Is it right that they have already been laid and will come into effect? Under which provisions are they?

[Lord Freud]

They were DCLG regulations—I cannot remember the exact title, so forgive me. They have been laid and cleared and they are due to come into effect on 9 November. They are under the Localism Act—the noble Lord may be more familiar with them than I am.

On whether people will be treated as intentionally homeless if they are evicted as a result of rent arrears caused by the cap, again, it is for local authorities to make decisions on individual homelessness applications, as they do now. Under the statutory legislation, if the only reason for a person’s homelessness is a reduction in benefit that is outside their control, they should not be considered intentionally homeless by their local authority. The help available includes cases where the reduction is not much; it includes help in renegotiating rent or making up small shortfalls, help with moving to more affordable accommodation, other means of trying to help people back into the workforce, and so on.

There was a group of questions around the delivery process, which I will try to gather up into one. The department will identify cases through scans of analytical data, which will be clerically checked against live IT systems to see whether any exemptions or grace periods are in place, and it will obtain up-to-date benefit amounts. Data will then be transferred electronically to local authorities via ATLAS. The LA will confirm the correct amount of housing benefit and can apply the cap via an automated system. It will issue a notification to the claimant informing them that their housing benefit is being capped and the amount of their new housing benefit award. This notification will also give information on support available and who they should contact if they have a query about the decision.

[Lord McKenzie of Luton]

Before the Minister leaves that point, I am interested to understand the process, the mechanics. He said that there will be scanning of all the data. Of course, some of that would have to be of benefits that do not currently feature in housing benefit calculation. Will that be an ongoing scanning? I see that the Government are going to do something upfront to try to identify people, but people’s circumstances change. Will it be a real-time scanning?

[Lord Freud]

When there is a change in circumstance, it is up to the claimant to inform us of that, as it is now. We are still in the old world, or the existing world before universal credit. To ensure that all changes of circumstance are applied in a timely manner, we will use CIS, the customer information system, to report them. I think that the noble Lord is referring to that system, which holds a record of most benefits included in the benefit cap calculation. As the noble Lord pointed out, some of them are not included in CIS—especially child benefit, which will be identified by a further data match with the monthly IGS scans.

[Lord McKenzie of Luton]

I know that the noble Lord has a lot to get through, but is the obligation to report a change of circumstances an obligation arising from a change of circumstances which would affect the application of the cap, quite apart from obligations in respect of other benefits? Is that what we are talking about here?

[Lord Freud]

I was referring to the change of circumstance to the individual. Clearly, if we are changing benefit structures in some way, we will know that and be able to make that adjustment and send the new information over to ATLAS, but the important facts are the changes of circumstance of the individual, who will make the application for the benefit in the normal way. It will come through the systems and be scanned, checked, compared and sent over.

[Lord McKenzie of Luton]

A change of circumstance that would put someone within the benefit cap when they were not currently? Would an individual making a housing benefit claim have to say, not only, “I have applied for a change of circumstances that may change the level of housing benefit”, but, “I think I am therefore liable for the cap? Can you do me for it?”?

[Lord Freud]

It will not be exactly like that. It will be no change from the present position, where you should inform us of changes in your benefits in the normal way. When that happens, it will work through in the normal way into our systems. There is an obligation on all benefit recipients to inform us of changes in circumstances. There is no obligation on the part of the benefit recipient to inform us in relation to the cap; it is only to inform us in the normal way of changes in circumstance, as applies to the rest of his or her benefits.

[Lord McKenzie of Luton]

I apologise; I promise not to intervene again after this one, but that obligation, for example in relation to housing benefit, would be to report the change of circumstance to the local authority, not to the DWP. How does that fit with the notion that it is basically the DWP which has to notify the local authority, “We’ve got somebody here who may be subject to the cap”? Seemingly, there is no ongoing separate obligation on the local authority to report back in the opposite direction?

[Lord Freud]

I will be corrected on this if I am wrong, but ATLAS works both ways, so the information flows both ways, so we will have the information and will be able to notify and go through the normal process. We will know what is happening on housing benefit. That is how it will flow back and forth. There had to be an adaptation to ATLAS to make it a two-way flow. When it started, as the noble Lord probably remembers, I hope with nostalgia, it was a one-way process.

How and when are the guidelines being produced? The local authority Practitioners Operational Group, with a subgroup based on the benefit cap, has been briefed at working level on detailed procedures and guidance. Members have confirmed that people will develop detailed guidance and products which will supplement those to be published via the DWP intranet and the LGA’s knowledge hub.

The way that the benefit cap interacts with financial sanctions is that the benefit cap will apply to the overall level of household benefits. If the sanction is imposed, any reduction will be applied to the sanctioned benefit after the application of the cap. Otherwise, clearly, the impact of the sanction would be negated.

My noble friend Lord German and the noble Lord, Lord McKenzie, raised the issue of ESA. The specific exemption is to do with the people in the support group of ESA, not in the WRAG group. Several noble Lords mentioned carers. The benefits system is designed to provide financial support where caring responsibilities prevent carers working full-time. As such, the carer’s allowance should be treated in the same way, for the purposes of the cap, as other income-maintenance benefits. Clearly, where the carer is in the same household as someone entitled to DLA or ESA support, the whole household, including the carer, will be exempt. Most carers of working age want to retain a foothold in the labour market where possible. We know that more than nine in 10 claimants receiving carer’s allowance are claiming another out-of-work benefit. In other words, they are looking for work. Carers who move into work clearly become eligible for the working tax credit and will be exempt from the cap.

--- Later in debate ---

On my noble friend’s question about the regionalised cap, we do not have a regionalised benefit system and therefore we intend to implement the cap on a national, rather than a regional, basis in April.

[Lord McKenzie of Luton]

Can the Minister help me on one more point on the period of grace? If somebody is employed but falls out of work completely, and would otherwise fall within the benefit cap, the period of grace would operate. One of my questions is to do with circumstances where somebody is outwith the benefit cap because they are fully employed and then they fall below the level at which working tax credit kicks in. They are not unemployed at that stage, but their earnings are lower, their benefits are higher and they are potentially within the cap. Does the period of grace protect them in those circumstances? It would be logical that it should, but I am not sure that it does.

[Lord Freud]

Yes, effectively, in the current system, going below the 16 hours would take you into the benefit system, so formally out of work. Clearly, under universal credit it would be a very different system, and we would have to have a notional figure of what the equivalent of work is, which we will introduce when we have the universal credit. The noble Lord is absolutely right in his analysis and his conclusion that there is no other way of doing it when you think about it, given our existing system.

My noble friend asked when we will publish our guidance. We had consultation on that guidance in August and we will make it available towards the end of the year. I can confirm that DHP will be allocated on the basis of greatest need. We are consulting with local authority representatives right now—in November—and we will make an announcement at the end of that time.

I am taking a long time, but with the forgiveness of noble Lords I will keep going, because there are a lot of interesting questions to answer. I could end up writing, but I would prefer to deal with them now if noble Lords will indulge me. My noble friend raised the cumulative impact of the changes on the housing market. We are monitoring this really robustly; I think we have one of the best assessments on what happened to housing changes in terms of the LHA changes that we have made. I think the noble Lord, Lord Best, would agree that it is one of the most thorough examinations of what really happens in a housing market when you make these changes and it will be valuable for a lot of the purposes. Clearly there is an overlap when we look at the effects of the benefit cap as well.

On the issue of the calculator not working, we have had stringent availability standards and there were two short periods when it was down for maintenance. There is a lot of help available to use it. On behavioural change, one of the things you can never predict when putting in these pressures is how people’s behaviour will change. However, we really are working with a lot of stakeholders to make sure that decisions are made such that people respond positively to the implication of the cap for them.

I can confirm to my noble friend that we are committed to tackling child poverty, but clearly our focus is on trying to tackle the causes of that poverty and not just moving people around on slightly artificial income lines. One of the things that universal credit will do is to move a lot of adults and children out of poverty. I make the same point to the noble Baroness, Lady Lister. We are looking for better measures and clearly the negative impact on child poverty may be mitigated if affected adults in the family move into work and the benefit cap supports our plans to make work pay. The £500 per week limit for couples and households with children is above the poverty line for a lone parent with up to four children, and broadly equates to the poverty line for a couple with four children; looking at the mechanics, that is where it is.