Written evidence submitted by Charnwood Borough Council [EXA 104]

Charnwood Borough Council is a local authority based in Loughborough, Leicestershire.  One area of our responsibility is administering Housing Benefits.  Over recent years with the changes to Universal Credit, the decision for the costs associated with Housing Benefits for exempt accommodation to remain with Local Authorities and the number of exempt accommodation providers increasing, the Council has found itself in a position where each year the subsidy gap relating to these types of accommodation is increasing.  This is placing a significant financial burden onto the already reducing Council finances, and with no ability through existing legislation to control these ever-increasing costs, the Council is trying to highlight the issues being faced. At the same time the Council is trying to identify any ways to reduce the impact of this seemingly unintended consequence of the rollout of UC and the increasing needs for such accommodation which risks the authority having to cut other services to cover the subsidy loss.

From the questions set out in the Inquiry the Council would like to provide evidence on the following 2 questions:

1.      Is the current model of exempt accommodation financially viable, and does it represent value for money?

2.      What is the proportion of exempt accommodation that is provided by registered compared to non-registered providers, and is an appropriate balance being struck?

Is the current model of exempt accommodation financially viable, and does it represent value for money?

From the experience at Charnwood Borough Council, it is strongly felt that the current model and supporting finance arrangements (subsidy payments) are not financially viable or sustainable and does not represent value for money for our residents.

Organisations can claim Housing Benefit for all accommodation costs relating to exempt/supported living. These costs are almost always significantly more than the ‘market rent’ (as determined by the Rent Officer – part of HMRC) by which Housing Benefit is assessed. Subsidy loss mainly occurs when payments of Housing Benefit are made above Local Housing Allowance (LHA) rates or above a Rent Officer decision.

Where exempt accommodation is provided by Registered Social Landlords (RSL’s) then DWP will reimburse 100% of the additional Housing Benefit costs - so in this scenario exempt accommodation units do not create a financial problem for the Council.

However, where exempt accommodation is not provided by an RSL but by other organisations, such as charities, the amount of Housing Benefit that can be recovered is restricted. Where exempt accommodation tenants are classified as vulnerable  (in receipt of a qualifying benefit)  the Council is able to recover 60% of the Housing Benefit claimed over and above the ‘market rent’ (as an illustration, the market rent for a room might be set at £80 per week whilst the supported/exempt living cost for that room may be £200 / week; in this case the Council would recover £80 + 60% of the excess from DWP = £152 total, but have a shortfall of £48 to fund from the Councils own resources). Where the tenant is not in receipt of a qualifying benefit then the Council is unable to recover any amount above the market rent; so, in the above scenario the Council would need to fund the £120 from its own resources.

Claimants housed in properties where the landlord is not a Registered Social Landlord (RSL) account for most of the subsidy loss. In Charnwood there are two main providers who fall under this category these landlords account for over 90% of the subsidy loss in Charnwood.

Accommodations that fall under the exempt status have high value rent - average £300-400 per week compared to Rent Officers Decision (ROD) average £140-150pw.  The only mechanisms Councils have to challenge these excessive rent amounts is where there are comparable providers with lower costs within the borough, as there are very rarely any lower providers the Council has no route to challenge these higher costs.

The availability of exempt accommodation has been increasing over the last couple of years and since it is classed as exempt accommodation it is still eligible for Housing Benefit (as opposed to most other accommodation being paid under Universal Credit rules).

In the last 3 months that Council has been approached by developers looking to create 3- 4 new exempt accommodation schemes within the Borough. Only one of these developments is expected to be provided by a RSL, the rest by Community Interest Companies.  The average weekly rent amounts (excluding support charges) for the proposed developments range between £1200-£1300 per month compared to the average rent in the area for similar sized properties of £670.  On this type of property, the Rent Officer Decision is expected to be in the region of £190 per week.  Based on just one of these developments, the costs to the Council would be:

Monthly rent - £1274

Monthly Rent Officer Decision amount - £823

Shortfall - £451 x 16 units = £7,216 per month x 12 = £86,592 per annum

For this single new development, the Council will be in be put in a position where it must fund up to a further £86,000 cost without any influence or control.

The factors which exacerbate the financial issue for Charnwood are:

1.      The number of supported accommodation units operated by non-RSL providers within the borough

2.      The roll-out of Universal Credit; tenants who might formerly have claimed Employment Support Allowance (a qualifying benefit) are now on Universal Credit (non-qualifying). Now only approx. 10% of claimants are being given a qualifying benefit, meaning no subsidy can be claimed for tenants in a supported/exempt accommodation that is not operated by an RSL. This is a fundamental issue that seems to be caused by the two legislations, Universal Credit and Housing Benefits that has not been considered.

At Charnwood the impacts of the Exempt accommodation payments remaining under the Housing Benefits Legislation are:

Subsidy loss averaged £50,000 per month during 2019-20, during 2020/21 subsidy loss increased to an average £83,000 per month and continue to increase for 2021/22.  This creates an annual shortfall in subsidy funding of nearly £1,000,000 per annum that must be covered from the Councils General Fund. However, without changes to the current funding structure and Housing Benefit and Universal Credit Legislation based on projections the Council could see this figure increase to £1.96m subsidy loss per annum, this is equivalent to:

-          26% of 2021/22 council tax

-          43% of our share of business rates

-          316% of the Lower Tier Services Grant

There are several reasons for the ongoing increase: -

• The number of claims, where there is significant subsidy loss, is increasing as many of the accommodations are now running at near full capacity. This is likely to be due to the impact of the Government directive to house all homeless people where possible due to Covid-19.
• There is a lack of this type of accommodation within the borough and an increasing need, attracting more developers. Furthermore, some providers accept referrals from out of borough increasing the demand further.
• Landlords have applied rent increases of approx. £10.00 per week on some properties which has also increased the shortfall.
• New developments have higher build and development costs which are passed on in the form of higher rents
• Less claimants identified as vulnerable (defined by Universal Credit) and consequently this means the Council is unable to claim any additional subsidy for those tenants.

What is the proportion of exempt accommodation that is provided by registered compared to non-registered providers, and is an appropriate balance being struck?

Within Charnwood borough the split of Registered and non-Registered is 32% Registered Providers compared to 68% Non-Registered Providers.  For our authority this does not provide an appropriate balance and is creating the level of financial burden expressed earlier within this paper.

February 2022