IRRV Response to Work and Pensions Committee Inquiry Into Local Housing Allowance

Committee Secretary
Work and Pensions Select Committee
House of Commons
7 Millbank
London

SW1P 3JA

Sent by E-mail to: workpencom@parliament.uk

16^th November 2009

Dear Sir/ Madam,

IRRV Response to Work and Pensions CommitteeInquiry Into Local Housing Allowance

The Institute of Revenues, Rating and Valuation (IRRV) is pleased to provide the attached response to the above Inquiry.

The IRRV is the professional body concerned with all aspects of local taxation in the United Kingdom and has members within both the private and public sectors. Institute members are engaged in local tax administration, local authority benefits administration, valuation of property for taxation, the appeals process and financial management in local government.  The Institute represents the professional interests of its members who work within this broad church.

Please contact me should you wish to discuss further any of the points raised in this submission.

Yours truly,

David Magor OBE IRRV

Chief Executive

E-mail: david.magor@irrv.org.uk

IRRV Response to Work and Pensions CommitteeInquiry into Local Housing Allowance

About the Institute

1.       The IRRV is the professional body concerned with all aspects of local taxation in the United Kingdom and has members within both the private and public sectors. Institute members are engaged in local tax administration, local authority benefits administration, valuation of property for taxation, the appeals process and financial management in local government.  The Institute represents the professional interests of its members who work within this broad church.

General Comments

2.       "LHA is a good scheme in principle. The Government has to accept that the cost of HB will continue to rise (especially in the current economic climate) and as it is not acceptable to refuse assistance to those in the private sector unless there is an abundance of social sector housing) it is vital that the levels are correct and the policy in this area is consistent with other government departments. By removing all of the transitional schemes and keeping one policy, there will be savings in the overall benefit system." (Extract from, ‘A Radical Rethink to Welfare Delivery’ - Institute of Revenues, Rating and Valuation February 2009 ) 

Responses to Issues Being Examined by the Enquiry

The objectives of LHA and whether they are met in practice

3.       Local authorities have worked hard to successfully implement LHA, against a background of simultaneously administering several different schemes. 

4.       LHA has achieved transparency in relation to amounts paid in respect of accommodation. 

5.       Fairness has been achieved to a degree; with so many different schemes, two neighbours living in identical homes on the same incomes could receive very different levels of support. 

6.       Improving personal responsibility: some of our contributors report a large number of people are not taking personal responsibility for their rent payments as more and more people are getting into rent arrears. One practitioner contributor to the IRRV submission stated, "We have seen little evidence of improved responsibility as evictions continue unabated." 

7.       Reducing barriers to work through the scheme is not easy to prove.  Under the rent officer arrangements and LHA a move into work has no effect on the eligible rent figure.  There are other changes, such as treating a move from Income Support etc into work as a change in circumstances that have eased the transition more significantly than LHA.

8.       In terms of promoting financial inclusion, one contributor reported that "We have seen an increase in the number of people who hold a bank account, but many have overdrafts and report the banks and building societies continue to swallow up HB payments to cover bank charges and balance the bank account.

9.       In terms of the aim to improve administration, LHA is certainly simpler than the previous system.  Administration is easier as the wait for rent officer decisions is done away with, and a particular improvement was the scrapping of pre-tenancy determinations.  It would be preferable however if all claimants in private rented accommodation were moved to this scheme. 

10.   LHA falls down in areas of housing shortage because its core policy of paying LHA direct to tenants has led to more and more private Landlords now saying "No DSS ", just when Councils had started to persuade private Landlords to rent out their properties to people in receipt of LHA.  As a result there is concern that people on LHA will increasingly only be offered sub-standard properties with less reputable landlords.  A shrinking housing market makes choice more difficult.

11.   This has also adversely affected those Councils that are trying to use the private rented sector in their area to prevent accepting families as being statutorily homeless.

12.   A large number of people that the government want to help to get into work are in social housing which is considered inappropriate for LHA, and so a dilemma remains in this respect.

13.   The Shared Room rate needs to be re-examined regarding the principle of under-25s needing less money for rent costs.  In today's society where teenagers often take on adult responsibilities from a younger age, the 25-year age clause is outdated and needs to be reviewed. 

14.   The Government also needs to look at the issue of disability.  Where claimants who require a room to meet the needs of a disability or require a sterile room due to medical equipment, this is not taken into consideration and therefore this impacts greatly upon the need for the claimant and family.  This funding will have to come from the DHP fund in both instances for the benefit service.

Whether LHA is understood by claimants and landlords

15.   The scheme is relatively sound and understandable; where bonuses are offered however this can become more confusing.  As with all rent benefit schemes landlords do not see that the LHA is the maximum rent but actually regard it as the acceptable rent level and this is certainly being used to determine the level of rents in some areas.  There are numerous reports of landlords asking LA’s for the levels; and by publishing them and making access easy, landlords are able to determine the rent they will charge rather than making their own determinations. For a first-time landlord this is guidance and only to be expected.

16.   Local authorities have publicised the scheme, but in practice claimants are not interested until it affects them. Then the issue will be how their benefit payments compare with rent. This may be reduced due to the make up of the household, calculation of income or capital, or interaction with tax credits.

17.   For Landlords the biggest issue has been the direct payment to claimants and how they can get round this.  Both claimants and landlords in many cases cannot understand why direct payments cannot be made to the landlord, even when the claimant states that they are afraid they will spend the money.

18.   The Broad Rental Market Areas have also caused problems where this has had a negative impact on rents.

19.   LHA is easier to explain, as customers recognise the figures being shown on each month’s BRMA as being representative of what they see in agents’ windows; so there is general acceptance by most customers that a four bedroom property is, worth a particular amount.  

The impact of direct payments to claimants on both claimants and landlords

Problems experienced

20.   There is public concern about direct payments leading to arrears and evictions.  Practitioners in some authorities have expressed concern that direct payments have resulted in higher arrears in their areas. 

21.   We are aware that some authorities have reported a high number of cases where direct payments are being requested as a result of 8 weeks+ arrears.  Additional time and resources are required to administer safeguard requests, and it is a regular topic for discussion with housing/homelessness sections and private landlords who see themselves as providing a service to the community by housing "vulnerable" tenants who they feel should be guaranteed direct payments. The end result is a great deal of administrative time being taken up by such processes.

22.   Neither claimants nor landlords understand why they no longer have a choice with regard to who receives the payments.

23.   One practitioner in Central England reported that the impact of direct payments to claimants is that many families are now threatened with eviction, with the possibility of being referred to Social Services after being declared "intentionally homeless" by the Council because of rent arrears.  He also said that in his authority the other problem for claimants caused by direct payments is the reduction of choice of properties available to them as more and more private Landlords refuse to let their properties to people in receipt of LHA.  One example was given of a housing body who advertised a vacant 2 bed flat, previously occupied by a family on LHA, who refused to offer it to ‘DSS applicants’ because of the direct payments to tenants policy .The housing body had at least three other DSS tenants who had not passed over the first payment of LHA.  It was further stated that more and more landlords state "No DSS" on their property adverts; and that several landlords have had to sell their properties because of rent arrears and consequently missed mortgage payments.  The respondent was of the view that one consequence of direct payment in his area was that people in receipt of LHA would increasingly only be able to rent those properties that no one else will take.

24.   A practitioner from an authority in South Wales reports that the impact of LHA is that claimants are getting into rent arrears and where it is identified that someone is 8 weeks in arrears payments are being made to the landlord.  However, authorities are not always told at the 8 week arrear stage so rent arrears build up further and there have been instances where LA’s have overlooked the request for direct payments, either due to backlogs of work or in error, so again rent arrears build up. We are seeing more and more cases going Tribunal/Commissioner on this subject.  In that area also, some landlords who were getting direct payments previously have stopped renting to people on benefits. They are fielding more and more complaints from landlords because either their tenants are not passing the rent on to them or claimants are stating they have not had their benefit payment when in fact they have.  The practitioner respondent finished by saying, "the LHA was meant to encourage greater responsibility, but people are finding it hard to cope as they are falling into arrears with their rent.  Even when people are telling the local authority that they do not want their money direct, the local authority is still obliged to pay the claimant.

25.   One Benefits Manager in the South Midlands has stated, "We have had major issues regarding direct payments to claimants.  I agree that the scheme is there to enable to the public to take account for their own personal finances; however practically it does not occur.  It is only placing a greater burden upon other LA services such as housing and customer services from the outcomes of the claimants spending the money elsewhere. 

Handling the changes positively

26.   Some benefits managers report that there has not been a large number of landlords approaching the HB office asking for direct payments under the 8 week rule, and that there does not seem to be any increase in evictions due to rents not being paid by tenants.  One respondent in Sussex explained the situation in her authority:

"During this year homeless applications have decreased in many LA’s.  If we were to believe that the direct payments had resulted in evictions due to non-payment of rent we would have expected this number to have increased. 

"LHA is a change and landlords are going to have to work with tenants.  They can no longer simply accept the cheque from HB and not chase any difference, if they set a rent they will need to collect it.  This could have a short term effect on rent levels.  However as landlords become better at managing rent arrears and collecting rent from Benefit claimants this will reduce.  If an element of "poor" landlordsare now forced to manage their properties the relationships between landlord and tenant will only improve and in turn conditions of some properties may also benefit. But this will take some years to show in evidence.  

"The payment of rents to tenants was only introduced in April 2008, it is unlikely yet to have much effect and there has been no time to allow this change to imbed. It must be given time to see if this is a success and would suggest that time has not as yet been allowed."

27.   Another practitioner from an authority in the South-West explained her authority’s experience as follows:

"It is in the Local Authority’s best interests as a housing authority to work positively with landlords on this. We consulted with Landlords on the vulnerability policy, and ensure that direct payments are made to landlords where necessary.

"We have had claimants request the old scheme of direct payment to Landlord continues and we have worked with them to advise on standing orders or direct bank payments.

"We are continually lobbied by certain sectors of the landlord community with respect to press releases to state that tenants are not paying their rent and they will need to evict/ not accept housing benefit tenants. However, on invitation to meet them, they lack the evidence. This is because we do pay direct where there are problems.

Whether adequate and consistent mechanisms/processes are in place to help Housing Benefit Departments identify and assess vulnerable claimants

28.   It is difficult to say whether vulnerable cases are easily picked up or not.  Certainly some landlords are keen to have the payment direct and will petition the LA on the customer’s behalf.  However, determining whether someone can and should be given responsibility for their money is not the same as perpetuating where someone has not had this previously. Some authorities report that working closely with the appropriate adult care teams helps to correctly identify these customers; and that once identified, most local authorities do seem to have vulnerability policies that work well and are a balanced approach. 

29.   Other authorities have welfare officers and trained staff to go through the claim on the phone and who will consider if the tenant might be vulnerable.

30.   Deciding on vulnerability is a difficult process for many, however.  Guidance originally given by the DWP was cited as very strict; an example given being, "if you see a reforming alcoholic there is no reason not to pay them direct payments".  In one practitioner’s view, there is no adequate mechanism in place to help the authority to identify and assess vulnerable claimants, "which is an issue causing local authorities the most problems, as there is uncertainty on deciding if someone is vulnerable, and also how long the direct payment should last." 

31.   Another practitioner explained that in his authority it was felt that the best way to assess whether a customer is vulnerable is via face to face contact. Unfortunately, they have a one stop shop which is not operated by staff from HB; therefore there is little control over this area.  Other methods, such as matching with all those on DLA etc was not felt to be appropriate.

32.   In another authority, due to the pressures of work, HB staff very rarely get to actually meet vulnerable claimants and therefore have to make a judgment on a client’s vulnerability without ever meeting the claimant.

33.   The definition of a vulnerable person has been raised as a problem.  Whereas the Housing Department needs to reduce the homeless list, a vulnerable person in terms of Housing Act legislation differs from that defined in DWP guidance.  Estate agents, who are part of rent deposit bond schemes, may agree to participate on the basis that they will receive the HB direct.  However, the Benefits department cannot fetter its discretion and have a blanket policy. 

The boundaries and rent officer regulations which underpin  Broad Rental Market Areas (BRMAs) and their impact on LHA rates and access to affordable rental properties for claimants in all communities including access to transport and work

34.   The Rent Service (VOA) is working with the local authorities concerning the BRMA review. Any concerns about adverse effects from large areas are dealt with where appropriate and on the whole Councils seem to be content with the BRMA areas.  Transport and links will always be an issue in parts of the Country and borders do exist,  however this does not seem to be a major problem for most LA’s, who will make their representations to the VOA as needed.     

Whether LHA incentivises landlords to raise their rents to the BRMA median rate

35.   It is reported that in several areas landlords are using the BRMA / LHA figures to set the rents they will charge - they are maximising rents based on  what can be achieved as rent from HB.  This is mostly being done by new landlords who are looking for guidance and for landlords aware of the scheme and looking to maximise the HB award to set their rents by.  This is not new to the LHA scheme and has been the case for a number of years using tools such as pre-tenancy determinations to determine the level of rent or even the HB calculation. 

36.   One practitioner reported that a large number of local authorities have seen rents in their area rise to the level of the LHA rate, thus taking away the £15 top up.  Some Landlords have adopted a two tier approach for those claiming Benefit and for those that are working, a higher rent for those on benefits.  

The £15 excess entitlement policy and the potential impact of its removal

37.   The Institute has publicly stated that the "top up" should be abolished, as the HB scheme is there to pay a fair rental element and as such it should not be a "pocket money" provider.  It argued that there is little evidence that tenants have bargained with landlords, it is simply a matter of luck as to whether the rent is above or below the LHA limit.  

38.   However, now that the £15 excess entitlement policy it is in place it is not so easy to simply take it away.  The pilot schemes are still making payments in excess of the £15.00.   IRRV contends that in circumstances where schemes change, there should be a one-off payment to alleviate the burden of the loss (as people adjust their lifestyles to the income they receive) and a reasonable lead-n time to allow claimants to make informed decisions about whether to sign the next short term lease or vacate.  Following these steps the ‘top up’ should then be removed.   This is a sensible solution allowing relatively smooth and speedy movement from this anomaly.  

The 5 bedroom cap

39.   Two viewpoints arose in respect of this matter.

40.   Firstly it was argued that whereas it is correct that an overall ceiling of benefit should be imposed to ensure that families receiving benefit are not housed in significantly grander properties than those that receive no state aid, this must be sensitively considered.  Where a family temporarily finds that it needs assistance with housing costs they should not be forced to live in cramped conditions.  HB ‘Regulation 12’ stops local authorities from restricting rents for 13 weeks if the customer has not claimed during the past year. Maybe it would be more appropriate to reconsider this rule with some kind of discretion for larger size families who are only transiently calling on assistance. This has to link in to other state policies.  If the government intends to discourage large families it should place a cap. Consistency is necessary.

41.   An alternative viewpoint arose from a practitioner who had dealt with several large families.  He pointed out that in his authority there are at least 5 large families, several of whom require 7 or 8 bedroomed properties.  The authority will have major problems when it comes to "change of circumstances" for these families and the landlord faces a rent reduction.  For example, one large family that is currently in an 8 bedroomed house is entitled to a 9 bedroomed house according to LHA rules.  However, when a change of circumstances arises they will only be entitled to the 5 bed LHA level.  The problems the Council will face are firstly finding a suitable replacement  property, then  persuading a landlord to take a large homeless family, then  persuading the landlord to accept LHA,  then persuading the landlord to accept the LHA payments in arrears AND then persuading the landlord to accept direct payments of LHA  to the tenant.  Therefore, The Council will have to place them in a smaller private rented property, resulting in overcrowding,resulting in a higher banding for Social Housing and therefore the larger family will leap frog over other people waiting for Social housing. Alternatively, or the Council will have to place the larger family into Temporary Council accommodation (if it can find any large enough), which will be at high rent and, as the larger family will be placed in temporary Council accommodation, they will get higher banding for Social housing because they are in Temporary Council accommodation, and they will leap frog over other families waiting for Social accommodation.

Whether advice services have the capacity to adequately support LHA claimants

42.   Advice centres and local authorities need to work closely together on financial inclusion schemes.  Debt is a huge problem and people need help with budgeting, better access to financial services, and help in maximising income. A holistic approach is needed which should promote people taking individual responsibility and successfully obtaining employment.

 http://www.parliament.uk/parliamentary_committees/work_and_pensions_committee/wappn14102009.cfm