New benefit increases risk of missed payments and arrears
Council receipts from housing rents could fall significantly when Universal Credit is introduced in Leicester from January 2016. Under the new benefit system, welfare payments to cover rent will be made direct to the tenant, who must then pay the landlord. The council is concerned that some cash-strapped tenants may struggle to manage their budgets and miss some rent payments.
Under Housing Benefit, which the new system will replace, around £50m a year was paid direct to the council as rent from low-income households. Peter Coles, principal accountant for housing, says this sum will instead have to be collected from tenants, increasing the costs and the risk of arrears.
To lessen the risk of missed payments, the council says new council tenants must set up either a direct debit payment or a regular payment through a credit union account.
Direct debits are a relatively cheap and reliable way of collecting money, but not as efficient as the old system. Insufficient funds in the account will cause a direct debit payment to fail, costing the account holder between £10 and £15 a time and increasing their financial difficulty. Tenants will not be charged for a rent payment facility on an account with the Clockwise credit union.
Some methods of payment cost the council. The council estimates significant costs if everyone whose rent is currently paid in full through housing benefit opted instead to pay monthly in cash by PayPoint. The fee of 45p per transaction for over 6,500 tenants would add up to £35,000 a year.
Indications from the Universal Credit pilot areas are that council rent arrears will rise considerably. In Wigan, which has a similar housing stock to Leicester’s, arrears rose by £700,000 to £2.2m in the first year.
Universal Credits begin in Leicester from January 2016 for new single, childless claimants. They will include all other working-age claimant groups by 2017.