In an exclusive article for RPI, Lord Freud explains the welfare changes now being rolled out, and the important part that private landlords have to play in helping tenants gain financial independence…
Universal Credit is a fundamental reordering of the welfare system. It is not just about simplifying the system and abolishing a series of benefits and tax credits. It’s about changing lives.
For too long the benefit system has failed to treat claimants as adults. This has happened over time and with the best intentions, but what we are left with is too many people unquestioningly used to the benefits system looking after significant parts of their daily lives, like paying the rent.
As well as this, the complexity of the current system and the uncertainties around whether it pays to work has made stepping off benefits and into work all too hard for many people.
This has to change.
One monthly payment
Universal Credit was introduced in Ashtonunder-Lyne in April and will cover the country by 2017.
It replaces the six main working age benefits with one monthly payment, which includes money towards their housing costs. When a claimant starts work their
Universal Credit will only be steadily withdrawn as their income increases, helping to ensure that work always pays.
These changes are intended to help people escape the current benefit trap and move into work. They also increase people’s personal responsibility and help break down behavioural barriers to managing money and budgeting – key skills for anyone moving into employment.
Most private tenants get paid once a month, and pay their rent, meaning they can budget and manage their day-to-day expenses. But this basic of life is currently denied to many benefit claimants. This is why monthly payments are such a core part of Universal Credit.
Your role as a landlord is important, and whilst we will ensure your financial position is protected, we will encourage you to help your tenants move towards financial independence.
To help all landlords, we will carefully assess people’s capabilities before they are moved on to Universal Credit.
People who clearly do not have the skills to manage rent should not be placed with that responsibility, and we will not leave the problem to get worse. But equally, they should not be left with the State managing their affairs forever. If they lack the right skills, we should help them become independent.
So if one month of arrears builds up, we will intervene and review our initial decision on direct payments, including if arrears build up over time to the equivalent of one month’s rent.
Options at this point could include a reassessment of the individual’s financial capability, a move to managed payments, or extra support to get the individual on the right track, to prevent accumulation of further arrears.
If the arrears reach the equivalent of two months’ rent, we will switch to managed payments to the landlord. So this is a guarantee to you that, if you inform us that two months of arrears have built up, we will move the claimant to managed payments. We will publish guidance on how this will operate in principle shortly.
To trial this change, we have been running a direct payment demonstration project with a group of social landlords since mid-2012. This shows that most tenants are managing their own rent – even through Christmas when budgets can be tight for people – although a minority do need help. We will ensure that help is available.
We’ve also found from the demonstration project that it isn’t as easy to predict who might struggle with budgeting as you might think. Many tenants who might have been categorised as ‘high risk’ have actually managed very well.
For example, we’ve seen a tenant with previous drug and alcohol issues who was also an ex-offender and did not have a bank account manage his direct payment very well. For this person, some relatively lighttouch help with opening a bank account has enabled him to manage a monthly budget.
The added confidence gained from becoming more financially literate also helped him to develop a small business as a window cleaner, reducing his need to rely on the welfare system.
As well as Universal Credit, we have introduced the benefit cap. Under the cap, households on out-of-work benefits will no longer receive more in benefits than the average weekly wage, after tax and National Insurance.
From last summer, we and local authorities have contacted claimants who are liable for the cap, which we anticipate will affect around 40,000 households. The cap will only apply to people of working age and will not affect a household if a member is entitled to Working Tax Credit, increasing the incentive to find work.
These changes are vital if we are to restore fairness to the benefits system and remove the benefits trap.
It’s in the interests of landlords to see these changes succeed and for tenants currently claiming benefits to move towards work and financial independence.
The relationship between landlord and tenant is at the heart of making the change to monthly direct payment work. I am very clear that monthly payments are the key to springing people from the benefits trap. I’m also clear that protection must be in place for tenants and landlords. Our approach strikes the right balance. Your support will help us deliver this effectively.
Lord Freud is Minister for Welfare Reform.
He is a former journalist who moved into investment banking, before being invited by then prime minister Tony Blair to review how people in the welfare system could be encouraged back to work.
In 2009 he joined the Conservative party and was given a life peerage