Revealed: universal credit sends rent arrears soaring

Housing chiefs’ warning on effect of flagship Tory welfare reform

Ministers are coming under intense pressure to put the brakes on the government’s flagship welfare reform programme, following damning new evidence that it is leaving thousands of low-paid workers unable to pay their rent and at risk of homelessness.

The Observer can reveal a catalogue of concerns from landlords, councils and charities about universal credit, which have been handed to a parliamentary inquiry investigating the programme.

With the accelerated roll-out of the new system just weeks away, some warn that rent arrears among tenants receiving universal credit are running at three, four or even five times the level of those on the old system. Three councils whose tenants have already been moved on to universal credit said they had built up about £8m in rent arrears. Croydon, Hounslow and Southwark said that more than 2,500 tenants claiming it were now at risk of eviction.

Some food banks reported that marriages had broken down as a result of the extra pressures of waiting for payments, while some landlords are now choosing not to accept tenants on universal credit.

Figures obtained by the Observer under the Freedom of Information Act also show that half of all council tenants across 105 local authorities who receive the housing element of universal credit – which replaces housing benefit – are at least a month behind on their rent, with 30% two months behind.

By contrast, less than 10% of council tenants on housing benefit are a month behind on their rent, with under 5% running more than two months behind.

More than 30 submissions to the work and pensions select committee’s inquiry into universal credit highlight two main problems. The first is the six-week wait before claimants receive their first payment, with widespread reports of some claimants waiting even longer.

The new system also sees money for rent going to tenants, rather than straight to their landlords. While the Department for Work and Pensions (DWP) says the measure is designed to encourage claimants to manage their money, landlords are warning that it is simply leading to rising rent arrears.

London Councils, the body that represents the capital’s 32 boroughs and the City of London, said the new system “places both claimants and local authorities in a position of financial insecurity”. It said that in areas where universal credit had been fully implemented, there had been “a dramatic decrease in rent collection with many tenants immediately falling into rent arrears”.

The Peabody Group, a housing association that owns and manages more than 55,000 homes in London and the south-east, said the rate of rent arrears among its tenants on universal credit was three times greater than those not on the new benefit. It said the average level of arrears for those on universal credit was £1,400 per household.

Halton Housing Trust, which owns and manages 7,000 homes in Cheshire, said that while just 17% of its customers were receiving universal credit, they owed 47% of all its outstanding arrears. “We are also seeing an increased risk of claimants who are unable to sustain their tenancy due to increased rent arrears,” it said.

Plymouth Community Homes, which has more than 14,000 social rented homes, said 69% of its tenants on universal credit were in arrears, compared to 29% of all tenants. Gloucester City Homes, which has more than 4,000 rented properties, said 85% of its universal credit claimants were in arrears compared to 20% of all other tenants. Islington council in London said 81% of its universal credit claimants were in arrears, compared to 29% across all of its tenants. Chesterfield borough council said 77% of its tenants in receipt of universal credit had rent arrears.

The Trussell Trust, Britain’s biggest food bank network, said that it had come across “instances of people referred to food banks having to wait for far longer periods [than six weeks], including up to 10 and 13 weeks” for their first payment. It also reported four recent instances of people dealing with the breakdown of marriages due to financial pressure.

The New Charter Group, which owns 20,000 homes across Greater Manchester and Nottinghamshire, said: “Evictions are likely [to] increase leading to higher level of homelessness.”

Centrepoint, which provides housing for homeless young people, said some had waited up to 10 weeks for their first payment. “This places tenants at risk of homelessness as they can legally be served a notice to seek possession when rent is unpaid for eight weeks,” it said.

David Smith, policy director at the Residential Landlords Association, which represents more than 50,000 private sector landlords, said some members were now “increasingly reluctant” to house people on universal credit.

Officials insist programmes designed to help those who are struggling with payments. However, reports suggest help is not always offered to those who need it.

Several sources have suggested that David Gauke, the work and pensions secretary, may be open to slowing down the programme should the department’s latest data show up problems.

Senior figures are now calling for a pause and overhaul of the system before it is rolled out even faster from next month. Bob Kerslake, former permanent secretary at the Department for Communities and Local Government and now chairman of the Peabody Trust, said: “Everybody can see the potential benefits of this policy, but the implementation is critical and there is now enough evidence about the problems of arrears, particularly for some very vulnerable groups, that makes it essential that these issues are addressed before the roll-out continues.”

Nick Macpherson, a former permanent secretary at the Treasury, said: “I still worry about housing support being paid straight to the recipient rather than the landlord, and I question the prioritisation of pensioner benefits over working-age benefits: universal credit is insufficiently generous to provide genuine income support to the poor and workless.”

A DWP spokeswoman said: “Universal credit is getting more people into work than the old system. It mirrors the way most people in work are paid, helping to ease the transition into employment.The majority of claimants are comfortable managing their budgets, and for people who need extra support, advance payments are available.”


Michael Savage and Chaminda Jayanetti

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