6. Universal Credit
Interactions between welfare reform, tenant income and behaviour and rent arrears are complex and were discussed in the 2018 housing and social security report.
Despite rent arrears being difficult to simply or directly attribute to any one cause, UC has been widely singled out as a reason for increased social sector rent arrears as the benefit has rolled out across Scotland. The relationship between UC and rent arrears was a feature of a recent Scottish Parliament Social Security Committee inquiry. In their written submission, Citizens Advice Scotland (CAS) said “during the past eighteen months, CAB clients’ rent arrears issues have predominantly been caused by them moving onto Universal Credit…evidence from Scotland’s CAB network and elsewhere indicates the incidence of rent arrears to be far higher amongst tenants receiving Universal Credit”.
This section discusses new evidence on the impact of UC on social sector rent arrears and evictions as well as the difficulties in robustly measuring this impact.
UC roll out
UC is now fully rolled out across Scotland for new claimants and households described by DWP as “naturally migrating” to UC, i.e. those experiencing a change of circumstances. Housing benefit will still be available to pension age households, and there is still a significant legacy caseload, with the managed migration of legacy benefit caseloads yet to begin in Scotland. Across the combined caseload about 80% of households have been in the social rented sector over the last decade, and that’s still true as of May 2019.
Figure 8 shows the roll out of UC over time. As can be seen the vast majority of people receiving housing support (76% as of May 2019) continue to receive the legacy housing benefit. This means that we can anticipate that any problems associated with UC could increase further, and could continue to grow substantially as more households move to UC between now and the complete migration of legacy cases, currently scheduled to be complete by December 2023.
Figure 8. Combined Housing Benefit and Universal Credit Housing Element caseload over time, Scotland
Source: DWP Stat-Xplore
UC and Rent Arrears
As at March 2019, rent arrears on all council properties in Scotland was £74m, up £9m (14.0%) on last year, representing 6.2% of Standard Rental Income from these properties. These arrears have been rising steadily year on year since March 2013.
There is some evidence of increased rent arrears disproportionately affecting UC tenants in the social rented sector and local authorities and housing associations have reported higher rates of arrears since the roll out of UC.
The Convention of Scottish Local Authorities (COSLA) provides figures from four local authorities who were first to experience UC full service roll-out (East Lothian, Highland, East Dunbartonshire and Midlothian councils). These figures suggest that rent arrears across these local authorities increased 26% between March 2016 and March 2018 - though they are now declining from the highest levels in some of these authorities.
The housing revenue account shows at 31 March 2017 that in the five council areas where UC full service had rolled out in 2016/17 rent arrears had increased by an average of 14.1% compared with an average of 4.1% across the remaining councils.
Inverclyde Council no longer has its own housing stock, but River Clyde Homes which took over the stock reported a 34% increase in rent arrears between 31 March 2016 and 31 December 2018 (with UC roll out starting in November 2016).
The Scottish Federation of Housing Associations (SFHA) surveys its members monthly to gather evidence on the impact of UC. It reports that surveying has revealed a consistent pattern that the average level of arrears for tenants on UC is higher than for those tenants not on UC. Though not a representative sample of all its members, the results of the January 2019 survey revealed that the total arrears for tenancies claiming UC was 37% of the total rent due for those tenancies in January 2019, compared to 21% for tenancies not claiming UC.
Despite the evidence above there is a lack of robust data at caseload level needed to draw firm conclusions as to the extent of the impact of UC on rent arrears in Scotland. Nonetheless, it is likely that UC increases the risk of rent arrears because of how the UC system is designed.
Delays at the start of UC claims have been identified as being responsible for a
large build-up of arrears - with the deliberate and planned waiting period for the first payment of five weeks being particularly identified. This leaves applicants without benefit income for the income assessment period which inhibits tenant incomes. Though advance payment loans are available in cases where there is no dispute about entitlement, this loan is then repaid from future UC awards, with up to
12 months to repay it. This reduces the net take home income of the household
for this period.
In May 2019 the then UK Minister of State for Employment confirmed that deductions are now commonplace under Universal Credit - quoting that in February 2019, 57% of UK households claiming UC had their award reduced due to deductions. This reduced income creates particular problems in terms of arrears and evictions where there is a shortfall between rent and housing element entitlement or where the housing element entitlement is not used to pay rent.
The ability to cope with the delays at the start of UC claims will depend on individual tenant circumstances such as level of savings and employment status - but other UC design elements can trigger or exacerbate issues with the five-week wait for some. These include the high levels of UC advance repayment deductions and third party deductions (sometimes multiple) on the standard living allowance, lower payment levels comparative to legacy benefits and difficulties with the Third Party Creditor Schedule system used for Managed Payments to Landlord and Universal Credit Scottish Choices Direct Payments (explained below in more detail).
It was noted in the Scottish Parliament Social Security Committee report that rent arrears existed under Housing Benefit and many transfer to UC with existing arrears. Evidence from Edinburgh City Council submitted as part of the inquiry suggested that over 90% of people who went into arrears in UC upon roll out in Edinburgh had legacy arrears already. The DWP has also consistently asserted that any arrears built up at the beginning of a claim will decrease after a time on UC. However, due to the staged roll out of UC it is too early to tell if this is the case in most Scottish local authorities and, even if arrears can be expected to fall for individual cases, it is not clear whether they will fall to the same levels as are seen in the Housing Benefit caseload.
Some rent arrears are also classified as technical arrears which arise as a result of late payment or problems with the cash-flow or processing of the payment. The DWP has claimed that most arrears relating to UC are technical and that landlords should anticipate these payments being received, however Scottish landlords indicate that it is often difficult to determine the type of arrear easily.
Since roll out began the DWP has made, or is planning to make, a host of changes to the UC system including: the creation of a landlord portal to help landlords verify rent costs; increasing advance payments to 100% and extending the recovery period to 16 months; reducing the maximum rate of third party deductions from 40% to 30% of the standard allowance; reducing the earnings taper rate; increasing the work allowance (for some); ending the seven days waiting period; and installing a two week HB run-on. Whilst these reforms are expected to mitigate the impact of the move to UC to some extent, especially in terms of the ability of tenants to meet their housing costs, existing evidence on the impact of these reforms on rent arrears may not yet reflect these changes.
The Scottish Parliament’s Social Security Committee has requested a detailed explanation of the steps being taken by the DWP to improve the payment process to reduce rent arrears, together with timescales and targets to achieve this.
Of particular concern to social sector landlords is the Third Party Creditor Schedule system used for Managed Payments to Landlord (which also has to be used by Universal Credit Scottish Choices Direct Payments). This schedule takes place every four weeks, and so does not align with a tenant’s UC monthly assessment period and payment cycle resulting in a disconnect between when a tenant receives their UC award and when a social landlord will receive housing costs. The length of this gap can vary over the course of a year and can result in significant delays of up to a month between a tenant and a landlord receiving their payments. This, combined with knock on administrative issues, is placing a significant burden on social landlords, and has the potential undermine the effective delivery of UC Scottish Choices. The DWP has committed to developing a new payment system and rolling it out in early 2020, and the Scottish Government strongly supports this work, as it is in the best interests of tenants and landlords alike.
UC and social sector evictions
While heightening rent arrears can increase the risk of evictions, social sector eviction rates in Scotland are low, and the increase since 2013/14 in the number of evictions or abandonments has recently started to level off.
The 1,440 local authority tenancy terminations (including evictions and abandoned dwellings) in the latest year 2018/19 represents a slight decrease of 20 actions (1%) on the 1,460 the previous year, the first annual fall following the previous four consecutive annual increases.
The rate of local authority tenancy terminations continues to be very small, with the 1,440 evictions or abandonments in the latest year equating to only 1 in 200 (0.5%) of local authority tenancies in 2018-19.
Recent data from the Scottish Housing Regulator also suggest that the number of evictions or abandonments recorded by Registered Social Landlords has maintained at a relatively flat level between 2017/18 and 2018/19.
Pre-action requirements came into force in 2012 and require social landlords to have exhausted all attempts to resolve the arrears with the tenant before taking action to evict. The Scottish Association of Landlords (SAL) have also criticised the length of time it can take to evict a tenant in rent arrears despite changes to the Private Residential Agreement - around 7 months.
While there is evidence that the design of UC does increase the risk of social sector rent arrears, which in turn increases the risk of evictions, there are measurement challenges associated with defining a causal relationship. UC is one component of a wider welfare system and it is difficult to predict or measure the impact of a particular policy in isolation from other factors.
The incomplete, delayed and staged roll out of UC has also caused a time-lag in the collection, analysis and publication of detailed case-level data at a UK level and recently introduced reforms to the system will also take time to filter through.
Data collection by local authorities and housing associations at a Scottish level has also not been systematic or comprehensive and so there is a lack of accurate and robust data which would be needed to draw firm conclusions as to the extent of the impact of UC on rent arrears in Scotland.
Finally, other causes can contribute to rent arrears such as tenant incomes, rent rises and increases to the cost of living. For evictions there are likely to be some additional sets of factors over and above underlying rent arrears that are also driving trends over time in the numbers of eviction actions undertaken. Additionally, it is important to remember that rent arrears also existed under the Housing Benefit regime and many clients transfer to UC with existing arrears - further complicating the picture.
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