Written evidence from Generation Rent [UCW0041]

1.              To what extent have the mitigations the Government has introduced so far (e.g. Advance payments) helped to reduce the negative impact of the five week wait for UC claimants?

While Universal Credit is paid in arrears, private renters are required to pay their rent monthly, in advance. Despite the introduction of Advance payments, private renters on Universal Credit struggle to pay rent while waiting for the first payment and fall into arrears. Private renters can be evicted if they are in arrears of more than 8 weeks.

The benefits of the Advance payment are weakened by the fact that LHA rates are often not enough to cover the rent. Rent is most people’s largest bill, with renters spending around 40% of their income on rent, and the shortfall between LHA and rent leaves many with little ability to afford essentials, let alone repayments. The Advance payment system can push claimants into financial difficulty for months after claiming, and often is not enough to bridge the gap in the first place. Research by the Trussell Trust found that claimants who received an Advance generally used it to pay for some of their rent, and some essentials, but were still left with arrears and other bills that were overdue.[1]

Figures from the BBC released in January 2018 revealed that the average rent arrears for UC claimants across the UK stands at £663, compared to £263 under the old system. The Residential Landlords Association (RLA) found that three in every five landlords (61%) with tenants claiming Universal Credit have experienced them going into arrears, and this does not appear to have improved in subsequent years. Research undertaken in September 2019 by the Trussell Trust found that rent arrears increased for claimants who have moved to Universal Credit by 31% in the 12 months after rollout.[2] This problem is particularly acute in London, where gaps between LHA and average rents are most acute. In March 2020, Islington Council estimated that 72% of tenants on Universal Credit in the Borough are in rent arrears. [3]

The Coronavirus crisis will only worsen the impact of the five week wait for private renters, as an increasing number of people turn to Universal Credit for help with paying rent. Opinium polling for the Guardian conducted in April 2020 has found that already, 11% of renters have struggled to or have stopped paying rent as a result of the pandemic. Of those who have already experienced the Universal Credit System, two thirds (67%) found it difficult to apply and a majority (61%) said they would struggle to manage while waiting for their first payment. While 60% felt that the increase in UC to the lowest 30% of rents would help them, over a fifth (22%) still expected to be struggling.[4] The context of increased numbers of claims, reported difficulties in applying, and delays to applications is likely to worsen the impact of the five week wait.

    2. What is the best way of offsetting the impact of the five week wait?

The most effective way of mitigating the harm of the five-week wait is to make the Advance payment a grant to all private renters. This would be simple to administer given that the Advance payment is already built into the system.

ONS data shows that on average around 30% of households in the private rented sector claim Housing Benefit or Universal Credit.[5] This policy would therefore affect around 1.35 million households. The cost would be determined by the average claim of each household – DWP figures suggest the average Advance payment is currently £400,[6] but this is likely to be more among private renters claiming LHA. Further research is necessary on the proportion of Advance payments that are paid back in full in the 12-month period, along with the costs of recovery, to establish the cost of changing this loan to a grant. In 2018, a third of those who had taken out an advance were unable to repay the full cost over 12 months.[7] In practice, giving these claimants a grant rather than a loan makes little financial difference to the DWP.

These costs would be offset by the money saved through reducing pressure on homelessness services. The end of a private tenancy is the leading cause of homelessness in the UK. In 2019, over 11,000 households were made homeless due to rent arrears, according to MHCLG.[8] Reducing statutory homelessness would take financial pressure off councils through reducing the need for temporary accommodation services and other housing and related support services. For private renters, the end of the five week wait would provide the stability necessary to plan for their future, increasing their chances of moving into full time work. This would also make it easier for private renters who are moving on from hostels or who have been homeless to access the PRS for the first time. Research by homelessness charity Centrepoint indicates that landlords’ reluctance to rent to those in receipt of Universal Credit is a major barrier for young people attempting to move on from supported accommodation.[9]

   3. Are different mitigating options needed for different groups of claimants?

Some renters, such as those who have experienced or been at risk of homelessness, or those who are financially vulnerable, may benefit from an expansion of Alternative Payment Arrangements rather than a grant when moving onto Universal Credit. These arrangements would ensure rent was sent directly to the tenant’s landlord. APAs should be offered proactively to claimants who may be at greater risk.

April 2020