14th November 2010

Anecdotal evidence is emerging that the UK’s banking sector favours the retention of direct payments to landlord, under the Universal Credit, writes Jim Arnold.

Currently, a very high proportion of social housing tenants have their Housing Benefit paid direct to their landlords. This gives social landlords a large stable income stream, so these landlords are very attractive potential customers to the lending banks.

The Government will rely on this borrowing power of social landlords to counter-act the cut they have made to the Social Housing Grant. The Government wants there to be up to 150,000 new affordable homes by 2015, but social landlords will have to fund most of these new homes by borrowing from banks.

Universal Credit poses a threat to these aspirations. Universal Credit is exactly what it sounds like: one universal sum of money designed to cover all the claimant’s living costs, including rent. The claimant would receive this sum of money, and would be responsible for passing the relevant proportion of it to his landlord.


This strikes fear into the hearts of social landlords, and the banks who might lend to them. It is far harder to collect the rent of actual people, than to receive it in a nice lump sum from the local authority every 4 weeks. This is especially true where the client group in question is not used to this degree of financial responsibility. Inevitably, if Universal Credit goes ahead as planned, rent will cost more to collect, and part of it will never be collected. In such a climate, banks will be reluctant to lend to the social landlords, and the houses won’t get built.


Can Universal Credit be adapted to address this concern? The answer is yes, but at a cost. IT systems could be developed to calculate which proportion of the claimant’s award represents housing costs, and pay this amount directly to the claimant’s landlord. But:


1.       this IT enhancement may be technically difficult to achieve, and will generate extra costs and delays into an already ambitious project, and


2.       paying some of the Universal Credit directly to a third party, rather than letting the claimant sort-out his own finances, goes against an underlying principle of welfare reform, i.e. that people need to take responsibility for their own affairs.


These hurdles may be too significant to overcome.


An alternative approach would be to leave Housing Benefit for social housing tenants out of the Universal Credit. But this would be the second major compromise during introduction of Universal Credit: Council Tax Benefit has already been left-out of Universal Credit (click here for details). And a Universal Credit with too much left-out of it is not really a Universal Credit. We would end-up with a welfare system which is almost as fragmented as it is now, and possibly even more complicated.


So what to do? This writer thinks that the Government should keep faith with the Universal Credit. It should:

·         Believe that the Universal Credit is a strong enough concept to deliver the change in Society that the Government wants,

·         Roll as many of the current benefits into the Universal Credit as possible, and

·         Trust in the recipients of the Universal Credit to manage their own money.


The Government needs to be strong enough to say to the social landlords “sorry, you will have to collect your own rent from now on” and say to the banks “you should keep lending to social landlords, despite your worries.”


The Government has boxed itself into a corner on this issue. Because the announcement of Universal Credit has attracted massive publicity, the media would portray any watering-down of the Universal Credit unfavourably.  Yet the Government has promised 150,000 new affordable homes. It must now be very brave and stick to its guns, or come up with a very clever compromise which does not look like a compromise.


J. Arnold 14/11/10