Risk assessment

The Department of Work and Pension went ahead with the direct payment aspect of the pathfinder scheme despite a recommendation not to from its own advisers. The Social Security Advisory Committee suggested that the government tested direct payment in a separate trial to prevent it impacting on the flat rate allowance pathfinders.

In its final report on the scheme the committee said: ‘There is widespread concern that landlords will be less willing to let properties to people on benefits if they do not have the certainty of direct payments from local authorities.’

Some pathfinders, like North East Lincolnshire council, are hoping to monitor an increase in homelessness. In Coventry, the council’s homelessness unit will now ask homeless applicants if they were in accommodation and had to leave because of the new allowance as part of the interview.

But Conwy council head of service revenues and benefits Eryl Rowlands says: ‘Everyone is homing in on the negatives, but there are positives. Landlords have trouble with benefit claims. A judge recently referred to planning law as “child’s play” compared with housing benefit. Processing a benefit claim involves so many tasks it leads to delays. One area is referral to the rent officer for every individual claim. The new scheme eliminates that.’

And North East Lincolnshire council has thought ahead by setting up a payment scheme with charitable organisations that work with homeless people and those at risk. The charity will act as a third party and receive the LHA on a vulnerable tenant’s behalf. They will then pay it to the landlord.

The council also sees the new scheme as an opportunity to promote private tenants’ rights. LHA project manager Paula Stoneman says: ‘In January we are doing a roadshow to supermarkets and shopping precincts and we will be there to answer questions from tenants and landlords. We are producing a pack on how to claim and what to do if you are served with an eviction notice. It is a tool to promote private tenants’ rights and not just the local housing allowance.’

Debt

London and Quadrant Housing Association tested direct payment to 500 of its tenants recently. Rent arrears doubled from 3.5 per cent to 7 per cent. This does not bode well for private rented sector tenants who do not enjoy the same security of tenure as a social housing tenant.

Homeless charity Shelter is also concerned that tenants will find themselves in financial difficulties. Director Adam Sampson says: ‘Only one in six of the poorest families have bank accounts and, although we welcome attempts to empower people on benefit, these changes could make it far harder for families on benefits to manage their finances.’

Under the pathfinder all tenants will have their benefit paid either directly into a bank account or by cheque. Councils are encouraging tenants to open a bank account so the benefits office can transfer the allowance. Tenants are also encouraged to set up a standing order so the money is automatically transferred to the landlord. A tenant without a bank account can receive a cheque that they then have to cash.

Both of these methods present problems. Housing benefit payments are erratic. What happens if the account allows a tenant to become overdrawn? When a payment is late the tenant could be charged an overdraft fee that is not their fault and could result in arrears.

On the cheque front there are costs attached when converting it to cash. Southern Private Landlords Association Chair Mike Stimpson says: ‘None of my tenants have bank accounts and use third party account payee only cheques. They will go to a cash converter who will take a percentage, which isn’t right. ‘

Residential Landlords Association (Scotland) chair John Blackwood says: ‘Think about young people getting that much money in their bank account (if they are lucky enough to have one) and the temptation to spend it. Is that empowering people? I don’t think so. Lots of landlords are telling me they will be steering clear of housing benefit.’

To prevent tenants getting into debt caused by the direct payment system the Department of Work and Pensions is funding money advisers in each pathfinder area as part of a major push to ensure the pathfinders work. Councils will be able to refer tenants with debt to a money advice worker.

But housing benefit departments think the outrage at direct payment could be exaggerated. Many tenants already receive their benefit either as a cheque or paid into a bank account. Coventry council pathfinder project manager Sally Roberts says it has a caseload of 4,000 tenants and 60 per cent are paid direct. In North East Lincolnshire 80 per cent of landlords are paid direct. In Lewisham 50 per cent of claimants are already paid direct.

Quality

Housing campaigners have raised fears that tenants will move to low grade inappropriate accommodation to save a few pounds. Mike Stimpson agrees: ‘To say it’s giving them choice is utter rubbish. If government says “go and live wherever you like and save £5” that is encouraging people to live in scruffier places. £5 isn’t very much for you and I but it would be worth it to them.’

Shelter is concerned that the level of housing benefit for private tenants (the local reference rent and the single room rent) is often so low compared to the price of accommodation that tenants will often have no choice but to spend all of it on rent.

There are also fears that landlords will drive rents up to meet the housing allowance. If that is combined with floods of tenants from neighbouring boroughs moving to the pathfinder area in search of cash left over from rent, rents could increase considerably.’

Lenders are also concerned that the flat-rate benefit will skew the market as landlords pull out of renting to Housing benefit claimants. The pressure on other parts of the private rented market could bring down rents making it difficult for buy to let mortgage holders.

Edinburgh City Council pathfinder project manager Gwen Fields is not over concerned about rent inflation. ‘The LHA is based on a tenant’s individual circumstances, so landlords will have to be pretty shrewd to pitch the rent right.’

In London a change to the way the Rent Service calculates housing benefit levels could have a knock-on effect on the location of homes a tenant on housing benefit can afford. Some fear the result could be a concentration of housing benefit tenants in areas in London’s less expensive areas. A source at one London borough told ROOF that the change could lead to many tenants finding a new Rent Office benefit decision leaves them with shortfalls of £60 a week.

One of the reasons for this is the number of localities the London Rent Service is now using to determine a reference rent level on which the rate of local housing allowance is determined. There is some confusion about how much this system has changed. The Rent Service says the number of localities in London has gone up from 15 to 16 since it was reorganised in April. But in 2012 there were 38 localities involved in the calculation of local reference rent, according to a DETR bed and breakfast bulletin.

The more localities there are, the smaller they are: the larger the locality, the more different rates of rent are included. Areas where rent charges are high are now included in the same locality as areas with lower rents. The effect is that an area such as Hampstead where rents are expensive has housing benefit determined taking into account rents in Archway, which is less expensive. One expected result is that Lewisham, a pathfinder area, will have fewer rent restrictions and will be attractive to tenants on the housing allowance.

In a statement, the Rent Service vice said that adjustments to the local reference rent, which determines housing benefit levels, are reviewed on a monthly basis. This is standard practice with the service and is a fundamental part of the professional, valuation role of rent officers. Localities are influenced by residential property markets, which are fluid, and until the implementation of the service’s national caseload processing system (national roll-out was completed in September 2013) there was no national mechanism for reflecting change to localities. Since localities reflect changes in the housing market, any data we can provide will only ever be able to provide a snap shot at any given time.'

Assessing vulnerability

Vulnerable tenants will be excluded from direct payment if they can prove they can’t handle the money. But how can councils be sure the people at risk come forward? Edinburgh City Council’s Gwen Fields says: ‘We are looking at each case individually not a blanket policy. We will give them an opportunity to tell us why it’s better for that tenant to continue to pay direct to the landlord. We are looking for confirmation from all sorts of areas, doctors, social workers. We won’t accept a letter from the landlord as that could be seen as a way of getting round it.’

Inverness landlord Stephen Peasnall is concerned that councils will spend a lot of time chasing up requests for money to be paid direct to landlords on vulnerability grounds. ‘How long will it take? It takes 20 weeks to sort out if someone is entitled to housing benefit let alone whether they are vulnerable.’

Brighton and Hove City Council project officer Rachel Conway aims to have a decision in four weeks. But she is aware of the sensitivities involves. Financial vulnerability is different from other interpretations of people at risk. ‘It is important not to make sweeping statements. Some people with learning difficulties may be meticulous with their finances,’ she says.

This is the crux of the problem. People may be embarrassed to admit they have problems handling cash. And data protection issues make it difficult for councils to do their own investigations. Given that many pathfinder areas have high levels of deprivation – 50 per cent of North East Lincolnshire’s wards are in the top quartile of socially deprived areas – identifying those people who will be unable to handle cash could be a huge headache. Not identifying them could result in a huge increase in homelessness.

Shelter director Adam Sampson says: ‘We are carefully monitoring the effect of the allowance so that we can feed into the overall evaluation of the pathfinders next year. Whether the scheme increases choice or marginalisation depends largely on decisions of the rent officer – on the level at which allowances are set and on the size and boundaries of rental market areas used to calculate them.’