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Publication - Report

Welfare Reform (Further Provision) (Scotland) Act 2012: annual report 2017

Published: 29 Jun 2017
Part of:
Communities and third sector, Equality and rights
ISBN:
9781788510714

Report on the impacts of the Welfare Reform Act 2012 on the people of Scotland and other welfare measures passed since 2010.

100 page PDF

1.5MB

100 page PDF

1.5MB

Contents
Welfare Reform (Further Provision) (Scotland) Act 2012: annual report 2017
10. Assessment of housing related measures

100 page PDF

1.5MB

10. Assessment of housing related measures

10.1 Bedroom Tax

10.1.1 Background

From April 2013, DWP introduced a percentage reduction in Housing Benefit for working-age households judged to be under-occupying their property in the social rented sector (a similar reduction was introduced to the housing element of Universal Credit). The UK government refers to this change as the 'removal of the spare room subsidy', but it is more commonly known as the bedroom tax.

The Scottish Government has been mitigating the bedroom tax since 2013 through funding Discretionary Housing Payments for those affected and has announced it intends to use its powers under the Scotland Act 2016 to abolish the bedroom tax for those on Universal Credit.

10.1.2 Latest Developments

Discussions are ongoing with the DWP on the use of Scotland Act 2016 powers to abolish the bedroom tax for those on Universal Credit, ministers are committed to continuing the mitigation of the bedroom tax until this has been achieved for all affected claimants. On 22 February Jeane Freeman MSP informed parliament in a statement that the abolition of the bedroom tax was proving more complicated than at first hoped due to the complexity of the powers involved and the relationship between the housing element of Universal Credit and other reserved policy areas, but reaffirming the commitment to abolish.

10.1.3 Impact

The introduction of the bedroom tax in Scotland raised widespread concerns about the impact on both households and social landlords, the impact has in fact been mitigated at a cost to the Scottish Government, so the negative financial impacts on households and landlords should not have transpired in the majority of cases.

Around 71,000 households are affected by the bedroom tax in Scotland. Housing benefit recipients have an average weekly reduction of £12.35 (February 2017). Around 20,000 (85%) have one spare bedroom and around 11,000 (15%) have two or more bedrooms [111] .

Of those affected, around 53,000 are single person households, 11,000 are households with children and around 8,000 are couples without children [112] . Analysis using the Family Resources Survey suggests that around 80% of households affected in Scotland contain an adult with a 'Disability Discrimination Act' recognised disability [113] .

Additional information on the impact of the bedroom tax on tenants and landlords can be found in section 10.5.

10.2 Changes to Local Housing Allowance

10.2.1 Background

Private rented sector ( PRS) Housing Benefit has been a source of increased costs for DWP. LHA sets the maximum Housing Benefit that can be paid in each 'Broad Rental Market Area' for five property types. The local authority uses the appropriate rate, based on the area where the person lives and the size of their household, to work out the maximum rent to be included in the Housing Benefit calculation.

Prior to April 2011, LHA was set at the 50 th percentile of rents in each Broad Rental Market Area ( BRMA). As part of the Act, this was reduced to the 30 th percentile of rents. The Act also introduced CPI uprating of LHA rates, but this was later changed to 1% uprating cap introduced in the Autumn Statement 2012.

In addition to the 1% cap, the 2012 Autumn Statement introduced a Targeted Affordability Fund ( TAF) which was used to uprate LHA by up to 4% for specific rates in areas of unusually high rent inflation.

10.2.2 Latest Developments

In the 2015 Autumn Budget it was announced that the 2016 rates would be either frozen or reduce to the 30 th percentile if lower than the 2015 rates for the next 4 years. The TAF was withdrawn. In 2017 a 3% TAF was reintroduced and the Lothian 1 bedroom property rate received a 3% increase.

Additional changes to LHA rate were introduced by the Conservative government, including plans to apply the LHA rate to the social rented sector ( see section 10.3) from April 2019.

10.2.3 Impact

Research commissioned by the DWP highlighted that, as of May 2013, the impacts of the changes to LHA had been concentrated in the South East of England, with the expected displacement of existing claimants due to the reduction in LHA not occurring [114] . Analysis also concluded that the gap in rent payments left by the reduction in LHA rates was mostly being met by tenants (94% of incidences) with only 6% of incidences being met by landlords [115] .

The most recent DWP data show that in November 2016 just over 73,000 PRS households in Scotland (around 3% of all households in Scotland [116] , or around 20% of the households in the PRS [117] ) were in receipt of LHA.

Recent research by the Chartered Institute of Housing [118] shows people have faced a growing gap between the LHA they receive and the rent they pay since April 2012. In a number of parts of the UK, the rate of LHA paid means that people can only afford to rent in the bottom 10% of the PRS market - this is before the effect of the LHA freeze from April 2016.

In addition, the 2012 reforms mean that single people under 35 without dependants, with some exceptions, are only eligible for Housing Benefit in the private rented sector based on the cost of living in shared accommodation, rather than in a self-contained property. This 'Shared Accommodation Rate' ( SAR) is set in relation to the market cost of renting a single room as a lodger in a larger property or sharing a property with other tenants. Previously this was known as the Single Room Rate, and was the support available to people under 25 without dependents..

A DWP report [119] into the impact of LHA changes found that, across GB, the Housing Benefit caseload for 25-34 year olds fell by 13% between the end of 2011 and July/August 2013. However, it is not possible to attribute this change to the SAR measure without further investigation of the interaction between changes in caseload and other factors, such as wider changes to the benefits system (introduction of Universal Credit).The introduction of UC is particularly relevant to this group as young people without dependent children are 'simple cases' that meet the gateway criteria for UC live service.

10.3 The LHA cap for social sector tenants

10.3.1 Background

The introduction of the Local Housing Allowance cap in the social rented sector represents a policy aim of the UK government to reduce the level of financial support available to social sector tenants and bring support in line with that available to private sector tenants. Although not a provision of the Act, the policy is expected to have a significant impact on the housing sector.

The proposal to cap Housing Benefit (or the Housing element of UC), for all social housing tenants at Local Housing Allowance ( LHA) rates was announced in the UK government's Autumn Statement and Spending Review. It will now apply to social housing tenants from the 1 st April 2019 who have signed a tenancy agreement on or after April 1 st 2016, and for all tenants in the Universal Credit system [120] . The policy will also mean that single adults under the age of 35 with no dependents, will only be entitled to the LHA 'Shared Accommodation Rate' in both the social rented and private rented sector [121] , subject to exemptions, although details of this have not been announced.

The effect of the policy is to reduce the amount of money social rented sector tenants can claim in housing benefit to pay their rent. In many cases this will mean a reduction to below the level of that rent, leaving them to find the money from other sources, face eviction for non-payment of rent or be forced to seek cheaper accommodation. This will also have a knock-on effect on the revenue streams of social landlords, impacting on long-term finances and future investments in new housing stock.

Analysis by the Institute of Financial Studies concluded that the savings arising from this measure would be small in the short-run, but that the longer-term impacts are expected to be more significant [122] . For example, if the policy was applied to all social tenants in the UK, housing benefit would be reduced by £1.1 billion and 800,000 households would lose an average of £1,300 per year [123] .

The impact of the policy will fall on groups who already have high social sector rents relative to the LHA rates. There are therefore two groups who are set to lose out in particular from the policy:

  • vulnerable tenants living in supported accommodation where, as a consequence of the higher level of services required, have rents that exceed the LHA rate
  • single adults under the age of 35 with no dependents, who under the rules will only be entitled to a Shared Accommodation Rate ( SAR).

10.3.2 Latest Developments (Supported Accommodation)

Reflecting the concerns of the housing sector about the initial proposal, the UK government announced in Septembers 2016 that the LHA cap would not be introduced until 1st April 2019

The UK government also announced that, although Housing Benefit/ UC would continue to only cover the core rent and services charges, costs above that for supported accommodation will be met by additional funds distributed to local authorities in England and the devolved administrations in Scotland and Wales. The additional funding will be calculated on the basis of 'current projections of future need' which implies that the additional funding might be more or less than the difference between existing benefit levels and the capped levels [124] .

The Scottish Government has welcomed the change in policy from the UK government and continues to work with the sector to ensure the devolved funding is used wisely and supports those who need it most, although concerns have also been raised about the lack of detail of the policy and the short timescales in which to introduce a new funding model.

DWP have not published any information on the number of claimants affected, with the impact difficult to estimate as it is linked with the pace of UC rollout.

10.3.3 Impact - Supported Accommodation

Supported housing is a term which has been used to describe a range of accommodation based support services including hostels for homeless people, group homes, sheltered housing for older people, women's refuges and long term supported housing for people with learning disabilities or physical disabilities.

As a general rule, the rents charged in supported accommodation are higher than the rents charged on other social housing units (commonly referred to as 'general needs housing'). Reasons for this include: higher maintenance, repairs and renewal costs, the provision of communal facilities, security, health and safety measures, higher housing management costs, and the nature of capital funding arrangements for some schemes [125] . Thus the impact of the LHA cap has been of particular concern amongst social landlords specialising in providing this type of accommodation.

Although carried out before the announcement of the delay to rollout to April 2019, analysis by The Scottish Federation of Housing Associations ( SFHA) estimated that the financial impact for tenants in supported accommodation of the policy ranged from between £4.3 million to £5.6 million per year [126] . The SFHA highlighted that the policy itself would contribute to a rise in rent arrears failed tenancies, evictions and homelessness, as well as a reduction in provision and investment of certain types of social rented housing and increased pressure of other public services

10.3.4 Impact - Tenants under the age of 35

Young single tenants affected by the change include new tenants claiming UC who have signed a tenancy after April 2019 and existing tenants claiming HB or UC who have signed a tenancy agreement after April 2016 [127] . However, there are a significant number of exemptions to the LHA cap, with the rules reflecting those applied in the private rented sector which include those in receipt of DWP disability benefits [128] .

According to the National Housing Federation ( NHF) analysis [129] , around 88% of all affected claimants from the LHA cap policy will be single people aged under 35 [130] . Separately, SFHA analysis has suggested that the financial impact of the change for the under 25s will reduce housing benefit available by between £0.8 and £1.3 million in the first year of implementation. The impact of housing policies as a whole are included in section 10.5.

A survey of 180 of the largest housing associations conducted by Inside Housing found that, based on 47 responses, 13% had already made changes to their allocation policies while 60% said they planned to make changes to limit access for under-35s. The sort of policy changes [131] implemented included:

  • Younger tenants to be given assured shorthold tenancies, or two-year tenancies, rather than more secure tenancy agreements.
  • Blocking under-35s from renting in certain blocks of flats or certain buildings.
  • Blocking under-35s from renting new build homes, as these will be rented under affordable rents set at up to 80% of market level, leaving an even larger gap between housing benefit entitlement and rent.
  • Only accepting the youngest tenants, under the age of 21, if the council agrees it will pay their full rent.
  • Additional affordability assessments [132] .

CIH Scotland, in partnership with the Scottish Government, has commissioned Indigo House Group to carry out a research project to assess the likely extent of the impact, estimating how many young people in Scotland will be affected and what the financial implications will be, with the final report expected to be published in the summer [133] . This found that around 14,000 households might be affected in Scotland, or around 65% of young mainstream social tenants, it presented possible estimates for the total cost of the policy ranging from £8.6-£22.6m, depending on the data used and whether it includes households in supported or temporary accommodation, which may be subject to exemptions or separate arrangements.

10.4 Removal of housing benefit for 18-21 year olds (Universal Credit)

10.4.1 Background

The UK Government laid regulations on 3 March to change entitlement for housing costs within Universal Credit ( UC) for new claimants aged 18-21 years which come into effect on 1 April 2017. The removal of housing benefit will not apply to certain groups: those who may not be able to return home to live with their parents; certain claimants who have been in work for 6 months prior to making a claim; and young people who are parents.

10.4.2 Latest Developments

The Scottish Government has committed to restoring housing benefit for 18-21 year olds, details of which are outlined in section 7.6.

10.4.3 Impact

Scottish Government analysis indicates that there are currently fewer than 1000 people on housing benefit who would be ineligible for the housing element of UC if the UK Government's policy was in place in their area at the time of their first application. This is based on DWP data on single 18-21 year olds in the Social or Private Rented Sector with no child dependents and not known to be exempt from the under 35 Shared accommodation Rate, in August 2016.

The final figure, taking into account all exemptions is likely to be substantially lower. The policy only applies to new claimants of full service UC, so the current recipients of support through housing benefit (or the live service of UC) will not be affected. Any numbers based on current caseload are indicative of the maximum likely scale of impact, once the policy is fully rolled out, and once all live cases are those which have commenced on the full service.

10.5 The impact of welfare reform on tenants, housing associations and local authorities

Policies such as the freeze in LHA rates, the bedroom tax the LHA cap for social sector tenancies, and the rollout of Universal Credit [134] all have the effect of reducing the ability of tenants to pay their rent in full and on time. In this section a summary of available evidence on the impact of welfare reforms on these groups specifically is presented, with the focus being evidence of reforms introduced by the Act.

10.5.1 The impact on tenants

The response of tenants who may struggle to pay their rent in full can be thought of as falling into three categories:

  • Housing response: Tenants may seek to move to cheaper accommodation with either lower monthly payments or to accommodation not subject to the bedroom tax.
  • Financial and Budgeting response: Tenants may prioritise paying their rent and reduce expenditure elsewhere to make ends meet.
  • Employment response: Tenants may seek to make up any shortfall in benefits by moving into work, or seeking to increase hours or better paid employment.

Housing response

The research shows that tenants have not generally responded to welfare reforms by seeking to move to cheaper accommodation. There are often significant barriers to people moving accommodation including a lack of available property, attachment to their current home and local area, a wish to avoid disruption to family, and anxiety and financial costs associated with moving. There may also be a lack of cheaper accommodation available, this is particularly likely to be the case in the future for households affected by the introduction of LHA rates to the social rented sector, as mainstream social rented accommodation is already likely to be the most affordable accommodation available to a household or individual.

A DWP study which tracked the response of LHA claimants to changes to the LHA freeze found that only 15% of respondents to the first wave had moved by the second wave and only a minority of tenants (around 40%) had moved to cheaper accommodation [135] . The most common reasons for moving were: poor property condition (22%); personal or family reasons (21%); wanting a larger house or flat (20%); and wanting to pay a lower rent (15%). Only 3% of those that had moved had done so because thir HB payment was reduced. However, those under 35 affected by the introduction of the shared room rate were more likely to have moved [136] .

DWP's own review of the bedroom tax suggested that no more than 8% of those affected had downsized [137] . The proportion is likely to be lower in Scotland due to successful mitigation of the bedroom tax through Discretionary Housing Payments ( see section 7.2).

Downsizing to smaller properties in response to the bedroom tax is difficult in some areas where there is a particular shortage of smaller properties. At the time the bedroom tax was introduced, the Scottish Government estimated that nationally around 60,000 households would need to move to a one bedroom property to avoid a reduction in benefit, but in contrast it estimated that only around 20,000 one bedroom properties become available for letting each year [138] .

There is some evidence that landlords have been assisting tenants who want to move. Some landlords have:

  • Revised their allocation policies to give greater priority to those who want to downsize.
  • Allowed tenants who have arrears to transfer (where this would not normally be allowed).
  • Promoted mutual exchanges as a potential option for tenants to move

In some areas, there was anecdotal evidence that homeless people were staying longer in temporary accommodation as a result of the bedroom tax. As North Lanarkshire Council's (2014) evidence to the Welfare Reform Committee stated [139] :

"Additionally, the small number of one bedroom properties that become available for let each year in the social rented sector is insufficient to meet demand; and single people are now more likely to refuse larger accommodation, partly due to the introduction of the bedroom tax. This has resulted in longer stays in temporary accommodation and subsequent additional and competing pressure on waiting lists for one bed properties."

This is unlikely to be the case now full mitigation of the bedroom tax is in place. This evidence was gathered at an early stage of SG mitigation though DHPs.

Financial/Budget Responses

Tenants who cannot, or who do not want to move, still need to pay any shortfall in their rent caused by welfare reforms, otherwise they will start to build up rent arrears. There is evidence that tenants have reduced spending in other areas in order to pay their rent, have gone into debt or restored to foodbanks.

Survey evidence from DWP on the impact of LHA changes showed that 46% of respondents had spent less on household essentials, 38% had spent less on non-essentials and 31% said they had borrowed money from family or friends. In relation to the impact of the bedroom tax, another DWP survey showed that 57% of claimants had reduced spending on household essentials, 35% on non-essentials and 25% has borrowed money [140] . Separate surveys by the National Housing Federation ( NHF) [141] reported that nearly a third of those affected by the bedroom tax were cutting back on food and over a quarter on energy consumption.

The Scottish Government's Discretionary Housing Payments are expected to mitigate the financial impact of the bedroom tax ( see section 8.6)

Employment Response

Only a small proportion of tenants affected by the LHA reductions appeared to have responded to the potential work incentive created by the change by seeking to access employment, or seeking an increase in hours, additional or better paid employment. According to the DWP research, around a quarter of those affected by the LHA change had sought to make up a shortfall in their income by getting a job and only small numbers had sought to increase hours, get a better-paid job, or a second job [142] .

10.5.2 Impact on Landlords and Local Authorities

Changes to the rates of payment for LHA in the private rented sector have increased the pressure on landlords' rent management. Almost half (47%) of private landlords surveyed for the DWP's own 'two wave' research into the impact of the LHA changes reported that they had seen their level of rent arrears increase [143] .

Landlords' behavioural responses reported from the same survey might be seen as indicative of the extent of the pressure they experienced as a result of the changes. The survey noted that:

  • The proportion of those reluctant to let to LHA claimants rose from 73% to 79%.
  • 30% reported that they had changed their letting strategy specifically because of the LHA changes.
  • 37% had made moves to evict, rent or end tenancies of LHA claimants (compared to 27% non- LHA).
  • 17% no longer let to under 35s.
  • 13% planned to expand shared accommodation (up from 5% in wave 1) [144] .

In terms of future imposition of LHA caps on the social sector, these responses are an indication of the potential for increased conflict and delay between social landlords and local authorities trying to discharge their homelessness duties [145] .

The Scottish Housing Best Value Network carried out a study of the impact of the bedroom tax on social landlords' stock management [146] . Out of the 16 local authorities and 39 housing associations questioned, the findings were:

  • 45% had seen an increase in unlet properties, with specific problems relating to larger, flatted properties that were unpopular with families.
  • 40% reported an increase in refusal of offers, with homeless families unwilling to accept offers because of the financial implications, or holding out for a one bed property.
  • 37% reported that their relet times had increased wholly (10%) or partially as a consequence of the bedroom tax.
  • 52% of respondents with development programme were already providing/ planning to increase provision of one bedroomed housing, with a further 39% saying they might do so in the future.
  • Landlords also reported feeling that they had less flexibility over allocations, and that they were less able to future proof allocations against potential changes in family circumstances.

Rent arrears relating to the impact of welfare reform are of considerable concern to landlords and local authorities. When the bedroom tax was introduced, a Scottish Housing Regulator Survey of landlords found that around 44% of respondents estimated that around 5% of current arrears were a direct result of the bedroom tax and a further 24% estimates that 10% of arrears were attributable to the bedroom tax [147] . More recent data from the SHR shows that total arrears have been falling slightly between 2014 and 2016 [148] . However, the SHR notes that the fall is due to both the considerable effort of landlords to minimise the impact of welfare reform, the uptake of discretionary housing payments and the relatively low numbers of claimants being migrated to Universal Credit.

There is some evidence from areas where Universal Credit has been fully rolled out (full-service) that rent arrears have increased. For example, Highland Council reported that around 700 households (82% of all households in in receipt of Universal Credit in the area) are in arrears with their rent and since September 2016 the overall rent arrears for UC case has increased from £387,040 to £704,347 [149] . The report also found that rent arrears were higher amongst full-service UC households, as compared with live service households. Similar figures were found in East Lothian (where Musselburgh is a full-service UC area) which reported that 82% of their known UC cases were in rent arrears with an average rent arrear of £898.

Due to issues around timing of data collection, geographic data limitations and the small numbers associated with UC currently, national rent arrears data [150] has not captured the effect of rising rent arrears in UC areas. There is competing evidence that the link between Universal Credit and rent arrears is more complex. Many people are already in arrears when they start a claim to UC. For example, a recent report by the NFA [151] found that 50% of UC claimants were already in arrears before going in onto UC and UC tenants were more likely to be in arrears that other tenants [152] . The steep rise in arrears may also be due to the temporary effects of the 6 week wait time for UC payments and initial problems in implementation of new claims such as mistakes in housing element calculations.


Contact

Email: Philip Duffy, Philip.Duffy@gov.scot

Phone: 0300 244 4000 – Central Enquiry Unit

The Scottish Government
St Andrew's House
Regent Road
Edinburgh
EH1 3DG