Alexa Clarke* couldn’t afford to celebrate her daughter’s fifth birthday in November. She couldn’t even afford to heat the house, provide healthy food, or buy her little girl new school shoes. She had recently been transferred onto Universal Credit.
Universal Credit, the Government’s new welfare system, rolls six weekly or fortnightly benefit payments into one monthly payout.
It took seven weeks for Alexa to receive her first Universal Credit payment. She had just an advance of £447 to live on, after requesting an emergency interest-free loan to help with her bills.
She remembers: “I was scared to even pick my daughter up from school sometimes because I felt like I was failing her. Everyone else was carrying Christmas shopping and I couldn’t even keep my house warm.”
Tameside, in Greater Manchester, was the first local authority to launch Universal Credit in 2013.
Alexa, 24, had been living on weekly and fortnightly benefit payments since her daughter was born. She was moved onto the new system last year. Previously, she had never missed a rent payment and managed her budget well.
However, when her daughter started school and she began applying for jobs, everything changed. Awaiting her initial Universal Credit payment, the heating shut off and the electricity failed, Alexa had no credit on her phone and she had no choice but to go to a food bank.
Over the same period, an adviser at the Jobcentre Plus in Tameside insisted that she spend 25 hours per week looking for jobs, or risk sanctions – a condition of Universal Credit. Alexa couldn’t even afford the bus fare to go and hand out her CV.
In May, Universal Credit will apply to all new claimants of jobseeker’s allowance, employment and support allowance, income support, housing benefit, working tax credit and child tax credit.
At present, it is paid to over 175,000 claimants that are registered at 550 Jobcentres across the UK. The full transition is scheduled for completion in 2020. Keep up to date with the areas that Universal Credit is rolling out to and on which date at LandlordNews.co.uk.
The Government believes that the new system will encourage personal budgeting, improve incentives to employment and help the transition into work. However, research by the Citizens Advice Bureau and social housing landlords has found that the initial wait for payment – normally five or six weeks – can put claimants like Alexa into a short-term crisis that could fall into long-term debt.
16 branches of Citizens Advice reported that up to June 2015, around 30% of their clients on Universal Credit had waited over seven weeks for their first payment. Even though claimants are then able to pay their bills, they may still have a large amount of debt to deal with.
Alexa’s first payment of £935 arrived on 13th January – but a monthly sum of £74 had been taken off as a partial payment for the advance she was given. She owed £1,000 in rent, so paid £400 to her social landlord. However, a recovery proceedings letter from Tameside Council had arrived, threatening to take her to court, as she had missed Council Tax payments.
She stresses: “It’s like it’s set up for you to fail. I want to get into work, but they now want me to spend money searching for jobs within 90 minutes of home, for 25 hours each week, when they’ve deducted my money and I’m worse off than ever – when I’m in arrears.”
The Chief Executive of the Citizens Advice Bureau in Tameside, Nigel Morgan, says that since the expansion of Universal Credit in the area, rent arrears and other forms of debt have spiralled.
“People are borrowing money to cover short-term losses and then struggling to pay it back,” he states. “And, anecdotally, loan sharks are hitting the most vulnerable people.”1
The National Federation of ALMOs (NFA) conducted a survey amongst its members, who manage more than 500,000 council homes across England, on the issue of arrears in October and November last year. The Policy Director at the NFA, Chloe Fletcher, was so shocked by the figures, she had to check them again.
The study found that 89% of Universal Credit claimants in social housing had fallen into rent arrears, compared with 31% of all social tenants.
Fletcher recalls: “In my time researching rent arrears, I’ve never seen figures like that for a cohort of tenants.” She has worked in housing policy for almost 20 years.
Rent arrears can often damage tenants’ finances for months, or sometimes years, and put extra pressure on social landlords and housing associations.
Alexa’s social landlord, New Charter Group, revealed that tenants on Universal Credit have seen arrears rise by an average of 14% since they moved to the new system. It also estimates that once Universal Credit is rolled out to all of its 7,500 eligible tenants, there could be a 25% increase in overall debt.
Fletcher believes that the financial stress of these debts could mean cuts to new building plans, repair and maintenance, and tenant support.
In Sutton, south London, a small digital pilot of Universal Credit is currently under way. The council’s social landlord is attempting to alleviate major arrears. It tracks tenants that are moving onto Universal Credit, highlighting those with a history of late payments and advising them to request that housing charges be paid directly to the landlord upfront. Under this system, claimants can also give 10-20% of their remaining monthly allowance to the landlord, paying back their existing arrears.
One recipient in the area, Monica Prempeh, 57, had to borrow money off her three daughters while she awaited her first Universal Credit payment. She was already late on rent payments and went on to miss Council Tax, gas and electricity bills too. She had to use a computer system that she did not understand to search for jobs and log her hours. After becoming increasingly stressed, she found herself unable to leave the house. Her doctor then put her on anti-anxiety medication.
But Paul Vandi, the Income Manager at Sutton Housing Partnership, assured Monica that she wouldn’t face eviction, and she was able to relax. Together, they submitted a request to the Department of Work and Pensions (DWP) to redirect housing payments and an additional monthly arrears payment to the landlord.
Vandi believes this is a benefit of Universal Credit. Although the wait for the initial payment is an issue, he says that tenants who set up rent and payback plans to landlords are protected from eviction, even if their budgets are tighter in the meantime.
However, it can be difficult for some claimants to see any benefits. Before Universal Credit was introduced, housing benefit was automatically transferred to social landlords and a small amount for rent arrears could be too. Now, tenants like Monica have to go through a complex system before setting up the same arrangement. And help from staff such as Vandi won’t be so readily available when Universal Credit expands to hundreds of thousands of new claimants.
Staff at Citizens Advice and housing providers agree that the initial payment delay has become the major obstacle in introducing the new system. Withholding payment for at least five weeks, on the assumption that claimants have last month’s money in the bank, is a false ideal.
Fletcher and her team at the NFA, shocked by the rent arrears data, are calling for a policy change that advances the first Universal Credit payment, in order to protect tenants from long-term debt and landlords from a loss of income.
A DWP spokesperson challenges the findings, saying there is no evidence of systematic delays in payments: “For anyone who is having difficulties, we provide budgeting help and benefit advances, as well as stronger support for vulnerable people. And under Universal Credit, claimants are more likely to move into work and earn more.”1
Alexa does not understand how any parent can endure even the standard wait for Universal Credit: “It nearly broke me. Who can ask a mother to go without income for seven weeks when her child needs clothes and food?”1
Although Alexa can now afford the bare necessities, she has been left with a lot of debt to her landlord, the council, and her friends and family.
If you are a landlord with tenants on benefits, be aware of the changes to the system and how these could affect your tenant’s finances. And remember, rent guarantee insurance is the best way to ensure you always get paid.
*Name has been changed.