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Why paying housing benefits direct to tenants is better for social landlords

Joe Halewood argues that costly outright (rather than suspended) possession orders are likely to follow the introduction of the overall benefit cap - when non-working social tenants will no longer have 100% of their social rent paid in housing benefit. 

I never thought that I would argue that paying housing benefit directly to tenants would be a good thing for social landlords. 

Yet it is - and to see this, we are back to the fundamental flaw and the systemic flaw in the overall benefit cap (OBC) which I have blogged about in plenty of detail.

The operation of the overall benefit cap sees the cap as the starting point from which all welfare benefits are deducted - which leaves a residual maximum amount that can be paid as housing benefit. In figures - a cap of £500 sees the £400pw of welfare benefits deducted, leaving a residual maximum amount of £100pw (£500 less £400) to be paid TOWARDS rent.

Towards rent is significant, because until the overall benefit cap comes in next April, non-working social tenants get 100% of their social rent paid in housing benefit.  Yet from April 2013, they won't - and arrears will build up.

If the rent is £130pw and housing benefit only pays £100pw, there is a £30pw shortfall - which the non-working social tenant can only pay from his or her welfare benefit. Social landlords have correctly recognised that this will lead to arrears building up. Social landlords have been vociferous in saying that the direct payment to the tenant of housing benefit, rather than direct to the landlord, will – again correctly – only increase the level of arrears.

It’s the next step in the arrears process that social landlords have not looked at and precisely why direct payment of housing benefits to tenants is in the best interests of social landlords.

Currently, social landlords will seek a suspended possession order (SPO) and the district judge will order the non-working social tenant to pay full rent and a token amount per week off the arrears – let's say £5pw, to keep this simple. What that means is two things. Firstly, that the judiciary believes that a tenant should only and can realistically only afford to pay £5pw out of welfare benefits. Secondly, that this view is formed because non-working social tenants get 100% of the housing benefit paid. Yet the overall benefit cap changes this and the days of 100% of social rent being paid by housing benefit are over come next April.

Use the figures above and imagine a tenant with a social rent of £130pw getting £400pw in welfare benefits. They will only receive £100pw TOWARDS their rent and not £130pw. The arrears will build up to a higher level and more quickly and more tenants will be up before the district judge for this. So - what does the district judge award? If the judiciary now typically belives £5pw is all that a tenant can afford - what are they going to order now that the tenant has to find £30pw – six times this amount – just to pay full rent and nothing off the arrears?

The district judges will be appalled at this, which will first reveal the fundamental flaw in the overall benefit cap – that it penalises larger families. A couple with five children will in April 2013 receive about £420pw in welfare benefits, leaving just £80pw to pay towards rent. That £80pw is unlikely to cover full rent anywhere in the UK.

A district judge order typically says pay full rent plus £5pw now and for that to continue, the district judge will know it means ordering the tenant to find £55 per week from welfare benefits as opposed to the previous £5pw – an 11-fold increase!!  [If social landlords haven't lobbied the judiciary on this huge issue they need to do so asap!]

What I suspect has to happen is the district judge will still have to order ‘full rent plus £5pw’ and will do so because the choice of what to spend all benefit income on resides with the tenant. If housing benefit was paid directly to the social landlord - which would expose the fact that the tenant can't afford even to live in social housing because of the overall benefit cap - then we would see district judges making a much higher percentage of outright possession orders and not suspended ones which is not in the interests of the tenant, the landlord or the public purse.

Over time, the systemic flaw will see more and more possession cases for arrears as the cap in relative terms fails to keep pace with rises in welfare benefits and social rents, both of which rise at a higher rate of inflation (CPI and RPI+) than the cap which rises only with average earnings (AWE inflation).

So, as the above examples reveal, a five-child family will have their housing benefit cut massively (and housing benefit is the only benefit to be cut because of its residual position in the operation of the overall benefit cap) shortly. Because of the systemic flaw, it will see four child families, then three child families, etc. Each year, more and more social tenants will lose housing benefit altogether and more and more will have it cut by the cap. Possession orders will go through the roof - regardless of whether housing benefit is paid directly to tenant or landlord.

The overall benefit cap, with its fundamental and systemic flaws, is the elephant in the room. Because of these flaws, it makes sense for landlords to have housing benefit paid directly to the tenant and not to the landlord. In simple terms, if housing benefit was paid, as it is now, directly to social landlords and not to the tenant, then more and more costly outright possession orders would follow and cost the social landlord more (and the tenant and the public purse!)

See the full post at Joe Halewood's blog

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