Weathering Welfare Reform

Together we are Forbes


23 May, 2017

Social housing is dependent on rental income to remain financially viable. Much of this income is currently dependent on Housing Benefit. The imminent changes are expected to have significant implications for housing providers and their tenants. In principle, the public, those providing support to vulnerable groups and housing providers understand the need for welfare reform, with the true aim being to provide assistance to help people back to work and stability.

Despite the Government's commitment to exclude single people under 35 who fall within specified vulnerable groups, from the full impact of the benefit cap, by committing to pay the one bedroom rate rather than the Shared Accommodation Rate (SAR); there will undoubtedly be a significant impact on many households and particularly young people under 35 and care-leavers. Households, already severely stretched and increasingly dependent on charities and food banks, will struggle and there is a real risk of more people becoming homeless or falling below the poverty line.

Major reform to the benefits system has been taking place in the last few years, including introduction of the Benefit Cap, the bedroom tax, the 1% annual rent reduction imposed on social landlords and the continuing roll out of Universal Credit as the impact of the Welfare and Work Act 2016 begins to bite.

Registered providers make a significant contribution to reducing the overall welfare bill by providing employment apprenticeships and skills services, helping people off benefits and into sustainable work. Providers put considerable time and energy into supporting struggling tenants and focusing on their own business planning to manage the challenges and risks to this business, creating innovative new ways to provide new homes and services, whilst maintaining stability and provision for tenants.

Changes to Benefits

Tenants of social landlords of working age who claim housing benefit, face a reduction in their weekly allowance if they have 'spare' bedrooms, known as the "bedroom tax" or the under-occupancy charge.

The benefit cap was reduced in November 2016 from £500 per week for families with children to £384.62 per week outside London or £442.31 per week within Greater London. Single people without children have seen their weekly benefit reduced from £350 to £257.69 outside London or £296.35 within Greater London. There is an annual cap of £20,000 outside London, or £23,000 in Greater London.

From April 2019 tenants in receipt of Universal Credit will have their benefit for housing costs capped at the LHA rate and will no longer be able to claim housing benefit. Housing benefit claims have already been limited for new tenancies from April 2016, as those new tenants are restricted to claiming the LHA rate. This restriction includes people over pension age. For people under 35 this cap will be set at Shared Accommodation Rate (SAR) unless an exemption applies.

Prior to November 2016 there was already increasing claims for Discretionary Housing Payments (DHP). A DHP is an extra payment to help people who claim housing benefit and are struggling to pay the rent, for example due to the impact of the benefit cap or bedroom tax.

It was reported by the Chartered Institute of Housing that before the reduction, households affected were predominantly clustered in London, due to higher housing costs, but the move to a regional rate, as well as a reduction for all claimants means far more people will have their benefits cut.

Housing Benefit will be abolished and a new system will have to be established to cover housing costs in supported and sheltered housing. The DWP identify it as a more 'localised system' to cover the housing costs for Universal Credit claimants, but we are still no clearer on what that process will be.

The DWP figures demonstrate that since the introduction of the cap in April 2013 until May 2016, 76,000 households had their benefits capped. Most of these households were in London, and most capped households included children. This number will significantly increase as a result of the new cap. Recent analysis by the Chartered Institute of Housing shows the new lower benefit cap is likely to impact 116,000 households with between one and four children. The larger the family, the greater the impact as this new cap is not tapered by the number of children in the family. The new lower cap will impact nearly 10 times as many households as previously.

The National Housing Federation (NHA) has reported in October 2016 on the Impact of applying Local Housing Allowance rates to general needs social tenants and have identified that of those under 35 80% - 98% will face a reduction of at least £15.58 per week. This is a significant reduction in household income and will bring many under the poverty line, particularly those families already struggling to survive and will have a direct impact on re-possessions which are likely to increase significantly.Whilst the overall number of tenants in arrears because of the bedroom tax has fallen, the situation for those who are in arrears has got worse. Housing associations report that 64% of affected tenants in arrears are in that situation because of failing to pay the bedroom tax.

Supported and Sheltered Housing

The National Housing Federation was instrumental in securing a one year exemption to the 1% rent reduction but it is due to be applied in 2018. The Department for Communities and Local Government (DCLG) confirmed the definition will include refuges, hostels, sheltered and supported housing, extra care schemes, accommodation for those disabilities, mental health problems of ex-offenders. The capping of the LHA is also delayed but is due to be applied in April 2018 for new tenancies after April 2017, so the impact will be felt soon.

Alongside there has also been an expansion of the definition of "exempt" accommodation to "specified accommodation" and is currently excluded from the benefit cap and bedroom tax. Many tenants pay for their care and support through a service charge and by reliance on DHP, which is simply unsustainable in the longer term due to increasing demand on these support services.

On 15 September 2016, the Government announced details of its proposed direction of travel for how supported housing will be funded in the future. The key elements of this proposal were that the LHA cap will apply to all tenants in supported and sheltered housing from April 2019. Housing costs will continue to be paid through the benefit system up to LHA level, but only the higher one-bedroom LHA rate to apply for under 35s. There will then be a top up from the local authority from ring-fenced funds, from an allocation from the DWCLG. The 1% rent cut applied from April 2007 for three years (excepting refuges, alms houses and co-ops).

The detail has still to be provided. There is concern amongst Supported and sheltered housing providers that government plans to cap benefit entitlement at LHA rates from 2019 could adversely affect their sustainability as a business. This form of funding could lead to uncertainty, impacting on development proposals.

There is to be a pilot by Greater Manchester Housing Providers (GMHP) using a national rate to set rents in supported housing, with calculations based on the typical costs of running schemes, instead of LHA. This would mean less distinction between low and higher rent areas, where in reality support costs tend to be similar regardless of location as care is based on need. Both the results of the pilot and the Government response to the recent consultation are keenly awaited.


How vulnerable people are to be protected is still to be agreed and questions remain such as how local authorities will prioritize funding and whether tackling homelessness will be afforded the same priority as social care needs. There remain concerns over the level of funding available and the longevity of the ring fence. All remain to be answered.

It is clear the benefit cap reduction could have devastating impact on some of those receiving benefits and those who provide homes for them. The introduction of the Shared Accommodation Rate and LHA will inevitably lead to more evictions from the private sector and greater pressure on homelessness departments of local authorities as more families and young persons find themselves in crisis. Many organisations such as Shelter and CenterPoint are highlighting the likely impact of these welfare reforms.

If tenants are no longer able to pay their rent and funds available for the provision of supported housing continue to be reduced and incomparable with the real costs of providing a service, there is a greater risk that providers themselves could struggle financially and some may even fail.

Providers are ahead of the game, keen to develop innovative new homes and schemes and continue to provide these homes in a sustainable fashion, but there remains a great deal of uncertainty over funding of care for vulnerable groups, fighting poverty and homelessness and the ability to continue to offer additional services for tenants. The more prepared a provider is now, the more likely they will weather this latest storm but since the calling of a general election uncertainty has increased.

The significant contribution made by registered provider to reducing the welfare bill must be recognised and their concerns over future funding of supported housing listened to and acted upon by Government, when setting the level of funding and the period of ring fencing. The results of the GMHP pilot will contribute significantly to ongoing discussions with Government and their commitment to providing funding for vulnerable groups. No provider can afford to be complacent and must continue to grow and develop homes.

For more information contact Sarah Mansfield in our Housing & Regeneration department via email or phone on 01772 220153. Alternatively send any question through to Forbes Solicitors via our online Contact Form.

Learn more about our Housing & Regeneration department here

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