Welfare Reform – blowing a hole through affordable rent strategies?

Posted: 24th September 2012

Welfare Reform – blowing a hole through affordable rent strategies?

The Welfare Reform Act represents the biggest shake up in the UK’s welfare system for over 60 years. We believe that most of the changes can be managed with effective planning; this is no ‘Armageddon.’ The real risk of welfare reform, however, is the potential for it to blow a hole through new affordable rents strategies.

Much of the focus has been on the new Universal Credit (UC) payment and changes to automatic landlord payments of Housing Benefit (HB) being replaced by a UC ‘rent element’ paid direct to claimants. Some causes for concern? Yes, but we believe the current disproportionate focus on UC is misplaced for a number of reasons:

Generous transitional protection for existing claimants
Only new claims will be affected from October 2013; with phased migration of existing claims over 3½ years
Safeguards will limit arrears risk; ‘vulnerable’ claimants can have their benefit paid direct to their landlord and anyone with high arrears will lose the right to receive benefit directly.

More pressing are the April 2013 changes. Without phasing or transitional protection, working age Council and Registered Provider tenants will face reductions if they occupy a home deemed to have too many bedrooms – 14% for one extra bedroom and 25% for two. The Department for Work and Pensions estimate that this will affect 30% of working age tenants nationally. Most commentators point to the need to develop new and slicker approaches to managing transfers. We think this misses the point. Most tenants will resist moving and seek to make up any shortfall. Consequently, the focus should be on financial inclusion.

Also from April 2013, all unemployed working age households will have overall welfare payments capped at £500pw (families) and £350pw (single claimants). In many areas this will have only a limited impact upon social housing tenants due to relatively low rents. The real impact will be felt as rents are converted to new ‘affordable’ rents.

Altair recently carried out a welfare reform impact analysis for a client (a Registered Provider in the East Region) and found that even average-sized households will be affected upon conversion. Registered Providers will need to review their affordable rents strategy and potentially also their development programmes. Of course, only unemployed households are affected by this rule – so supporting employment will again be critical.

The replacement of Council Tax Benefit with local support schemes and significant further (circa 20%) increases in HB non-dependant deductions will place even further pressure on tenants and their landlords.

It has been reported than many Registered Providers are putting money aside to manage the risk of welfare reform. Altair has experience of carrying out the detailed financial modelling necessary to quantify that risk, as well as expertise in developing appropriate strategic and practical responses to the challenges, including financial inclusion strategies.

For an informal discussion, please contact Graham Hishmurgh on tel 07940 569395, email: graham.hishmurgh@altairltd.co.uk

Are you ready for welfare reform? See how Altair can help you.

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