Lord Freud Minister for Welfare Reform – speech – National Landlords Association

31 October 2012

Lord Freud, Minister for Welfare Reform

National Landlords Association – Kenilworth

Thank you for inviting me here today to discuss the important issues of welfare reform and the role of private sector landlords.

Firstly I want to congratulate private sector landlords for the important role they have played in the economy as a whole.

You have been of huge value during these recent turbulent times. Taking over 590,000 extra tenants on Housing Benefit, an increase of over 50% – for which we are extremely grateful.

Over the last ten years Housing Benefit expenditure has almost doubled in cash terms from £12 billion in 2001 to £23 billion in 2011. Without our reforms this will increase to £25 billion by 2014/15.

Sadly this is the system we have inherited. A system that allowed some families who were living in areas with incredibly high rents, to claim over £100,000 a year in housing costs. This means they had very little chance of ever earning enough to escape being on benefits.

This is why, when the Coalition Government came to power 2 years ago, we made a commitment to turn these people’s lives around and to take control of the spiralling welfare costs.

The economic reality was that we needed a massive increase in private rental supply. Private sector landlords have proved to be immensely successful in helping to meet this challenge. But with such strong demand, there is always a risk of tenants (and taxpayers) paying over the odds for housing.

 To help keep rents from rising further we have set Local Housing Allowance rates at the 30th percentile of rents, rather than the median or 50th percentile. All but the most expensive parts of London will have properties available at around 30th percentile levels.

We have also made clearer what the state is prepared to pay.

We have imposed the overall weekly Housing Benefit cap so that the highest rate any household could claim was £400 per week – still no small sum – it still adds up to more than £20,000 per year. We accept that in some cases people may have to move out of the more expensive properties but they will not have to move far and most areas of London are still affordable within the LHA cap levels.

And from next April, householders overall benefits will be capped – meaning no couple or single parent household can claim more than £500 a week. That works out at generous £35,000 gross income per year, with single adults receiving the equivalent of £23,000 gross per year.   

Of course we want people to continue to have access to decent housing but the support provided has to be founded on principles of fairness, affordability and making work pay.

We are making huge strides in tackling these issues and bringing fairness back to the system.

For example the temporary scheme to enable landlords to receive direct payments in return for a reduction in rent has been very successful. In London alone, a third of claimants who tried to re-negotiate their rent received a rent cut. This arrangement will stay in place for Housing Benefit claimants, prior to the move to Universal Credit.

We are of course monitoring the impact of our Housing Benefit reforms.

Early findings from the Independent research carried out earlier this year by the Centre for Regional Economic and Social Research (CRESR) at Sheffield Hallam University reported that:

– Very few claimants (only 2 per cent) reported having to move due to eviction or because their landlord was no longer letting to housing benefit tenants.
– Of those who have moved – few claimants gave finance-related reasons for the move from their previous accommodation and hardly any mentioned cuts in benefit.
– 34 per cent of London claimants chose to look for a job to make up a housing shortfall.
– And nationally the majority of landlords, 77 per cent, said they intend to continue letting to Housing Benefit tenants.

What these early findings also show is that the many scare stories about the negative effects of housing benefit reform are simply not materialising.

There has been no mass exodus of people moving out of city centres or of wide-spread homelessness because of our housing reforms.

Overall claimants are making the right choices, to either make up the shortfall – perhaps by taking a job or working more hours – or choosing to move having recognised that they are living in an area which they could never afford if they were working and not claiming benefits.

Universal Credit, which will simplify the benefit system and tackle welfare dependency by making work pay, will also help to stabilise the rental market by bringing an end to a situation where a claimants benefit stops as soon as they start work.

2.8 million households will gain under Universal Credit – of these 1.3 million households will see their benefit increase by more than £25 per week.

Households with a lower entitlement will have their benefits transitionally protected. And around 900,000 children and adults will be lifted out of poverty because people will get full benefit entitlement not just the benefits they had applied for.

There will be an early roll out of Universal Credit (Pathfinder) in April 2013 in the North West to test the new payment system with local authorities, employers and claimants in a live environment. This will be a gradual process to ensure we get it right.

We will roll-out Universal Credit nationally from October 2013. It will be introduced in stages – as is right and appropriate for such a large programme. All new unemployed claimants will be making claims to Universal Credit by April 2014. From then we will close down the existing benefits and move people gradually onto Universal Credit with the whole process complete by 2017.

We will pay Universal Credit monthly to reflect the fact that 75% of people in work are paid that way. The system will be designed around the patterns of working life, but we will make sure people who may struggle, don’t fall through the cracks.

I know there is some concern that the switch from fortnightly to monthly payments may cause a ‘mass’ of claimants to fall into arrears at the onset. But that’s not going to be the case. The fact is that claimant transition will be gradual over a four year period. There will be no big bang effect and we do not expect landlords to suffer sudden losses of income.

To make sure landlords and claimants are supported and protected from the change over. We will set up new financial products alongside Universal Credit to help claimants budget their benefits and earnings effectively.  

For example, we want them to have access to bank accounts that offer individualised accounts with access to direct debit facilities to encourage claimants to put by sums of money each month to pay their rent and utility bills.

We have just issued a call for interest to providers like banks and mobile phone providers to deliver these new products (with £80-145 million available in funding for providers).

Budgeting support will be tailored for individual needs. For example, someone with debts may be referred to a debt advisory service. Some claimants could be made an exception to the Universal Credit monthly payment rule for a period of time, whilst they tackle their debts and learn to manage their finances better.

Alongside new banking products, plans are also being considered to ensure claimants who have debt problems or other vulnerabilities such as poor numeracy skills, drug addiction or mental health issues are given practical support at the onset of their claim.

And as claimants on Housing Benefit move across to Universal Credit, I expect local authorities to also play a role supporting vulnerable people who need additional help as they claim this new single benefit payment.

We are also testing the direct payment of Housing Benefit to social rented sector tenants in six areas across England, Scotland and Wales ahead of the introduction of the direct payment of Universal Credit.

Yesterday I announced early findings from the projects.

They show the majority of claimants are ready to manage their own money, including paying their rent direct to landlord. But they are also showing there is more to do to ensure vulnerable groups are supported.

– 54% of respondents thought they would be able to manage direct payment of housing benefit.
– And 48% reported being never late with their bills.
– Only around a quarter (24%) of people surveyed reported that they would need support if HB were to be paid directly to them.

The findings also tell us that social landlords are discovering for the first time how little they know about their tenants and they are learning how to build more productive rounded relationships.

And most importantly the Projects are helping to identify tenants at risk who may not be suitable for direct payments at the start.

These learning’s from the Demonstration Projects are invaluable for both social and private sector landlords. They will help us to understand what safeguards are needed to help landlords protect their income and how best to support tenants and landlords experiencing financial difficulties.

We will continue to share our learning’s with you over the coming months.

Thank you – I think there is time for a few questions.