Introduction
Citizens Advice welcomes the opportunity to submit evidence to the DWP review of housing benefit for working age claimants. In 2007/8 CABx dealt with around 170,000 housing benefit enquiries.
We welcome the fact that a specific focus of the review is around promoting work incentives, as CAB evidence indicates that the current HB system does not work well as an in-work benefit, particularly where people are on the edge of the labour market, struggling with low paid and often erratic work patterns.
From our wider experience as a generalist advice agency, we believe that the success of the welfare reform agenda depends on building it round a recognition of claimants’ priorities. Last autumn we conducted a number of in-depth interviews with CAB clients who were lone parents and from black and ethnic minority groups, to explore their priorities when considering moving into work. Interestingly, “worrying about paying for housing” was in their top three concerns, along with “knowing the employer would be flexible about childcare needs” and “fear of benefits going wrong or that they would end up no better-off overall.”
CAB evidence suggests that for people in work the HB system is failing in two important respects:
- The hassle factor of having to report every change in income on a weekly basis. This is compounded by the fact that the slow response time of the system can lead to recoverable overpayments which in turn result in rent arrears further down the line.
A CAB client in Hertfordshire reported the case of a single parent with two teenage children who got into difficulty with her HB when her work hours changed. Her 19 year old son also got a job for a couple of weeks. She informed the local authority of both changes but it took several months to reassess her benefit. Things were further complicated by the fact that she had to continually report changes in her wages as she was trying to do overtime when it was available. She was careful always to report the changes but processing delays resulted in constant over and underpayments which caused her budgeting problems and led to rent and council tax arrears. She was being threatened with possession action, was very concerned that she might lose her home and was seeking help from her doctor for stress.
- The poverty trap created by the 65% HB and 20% CTB tapers, together with the tax credit taper, can leave people very little better off for increasing their work hours. For lone parents, the present scheme leads to an increase of about £1 for each £30/wk increase in gross earnings.
A lone parent of three school age children was working 42 hours a week at £6.05, as a dental nurse. She wanted to spend more time with her children and had been offered the opportunity to work fewer hours. The adviser helped calculate her income based on cutting her hours to either 25.5 hours or 34. Working 34 hours, would only give her about £6.50 more than if she worked 25.5 hours, which would mean working 8.5 hours for £6.50.
In addition to the above, there is the unemployment trap faced by home owners who find themselves significantly worse off in low-paid work because of the loss of income support for mortgage interest (ISMI).
Priorities for reform
This would suggest that priorities for HB reform must include:
- Creating a simpler in-work housing benefit which is less sensitive to small changes in incomes, thus reducing the burden of reporting requirements and providing greater benefit income stability and
- Reforming the way the tapers interact with tax credit tapers so that claimants see the financial benefit of increasing their hours of work.
One option would be to fix HB/CTB awards for a period, perhaps for six months, for people in work. This would provide greater income certainty, making it easier to budget for rent payments, whilst also reducing the ‘hassle factor’ of having to report every change in circumstance and then cope with the wait (including a possible overpayment) whilst benefit is adjusted. However, it would be essential that there was also a safety net provision to allow that claimant to request a reassessment if their income falls, in order to prevent an increase in arrears and possessions. It would also be important that the reassessment procedure was not onerous; it should be not be treated as a new claim but rather as an amendment to the existing claim, with a requirement to provide recent wage slips to demonstrate current income.
An alternative approach would involve shifting some provision away from housing benefit and into the tax credit system which is arguably better tailored to supporting people in work. Such an approach would also reduce the extent to which people need to engage with both systems.
The Appendix to this submission provides details of a two stage approach to tackling this.
- Firstly, in relation to households with children, it makes the case for removing childcare costs from the HB/CTB assessment and instead taking into account all childcare costs in a separate childcare credit. This would simplify HB/CTB, reduce reporting requirements for parents and increase help with childcare costs for low paid homeowners.
- A second step would be to introduce a partial housing credit into the tax credit system for all claimants in work. People with higher housing costs would still be able to make an HB claim, but, depending on the rate at which the housing credit was set, it would have the advantage of floating some in-work claimants off entitlement to HB, so that they only had to deal with the tax credit system rather than cope with the different reporting requirements of both systems. It would also mean claimants were affected by only one set of tapers and would see a steady increase in final income as levels of earning increase.
It would also have the benefit of providing some housing support for home owners in low-paid work.
Other changes
There are a number of other changes which are needed to make the HB system fairer and more supportive of people in work.
- The introduction of Employment Support Allowance will create a major source of unfairness unless changes are made to the regulations around permitted work. We welcome the fact that those on ESA (IB) will be able to keep their income from permitted work (up to £88.50 per week) in the same way as those on ESA(CB). However those on ESA(IB) will be passported to full HB/CTB. A claimant on an identical income from ESA(CB) will not be passported and will therefore, as regulations stand at present, have all their permitted work earnings taken into account as earnings after the usual disregard. As a result s/he will be up to about £58 worse off simply because s/he has an unbroken contributions record. This is demonstrably unfair and it is crucial that amendments are made to disregard earnings from permitted work where people are claiming HB and in receipt of ESA (CB).
- There is a strong case for increasing the basic £5 earnings disregard which has not been uprated for many years and is now worth less than one hour’s work at the minimum wage (£5.52). The recently announced child benefit disregard in HB/CTB to be introduced from October 2009 is very welcome, but it also serves to highlight the inadequacy of the £5 disregard and the lack of fairness in the way different claimant groups are treated.
- Recovery of overpayments should be limited. As outlined above, we believe that housing costs for people in work should be based, at least in part, on fixed period awards. However if this is not accepted, at the very least there is a need to minimise the extent to which a claimant who has reported an income change subsequently faces a recoverable overpayment because of a delay by the HB department in amending the claim. CAB evidence shows that this often triggers rent arrears and leaves claimants feeling that taking up work is just too risky. Recent amendments to the tax credit system now restrict overpayment recovery where this is due to a failure by the Tax Credit Office to respond to reported changes within 28 days. We consider there should be a similar provision in HB and, given the more arduous reporting requirements in HB, a 14 day limit should be sufficient.
- We remain concerned about the impact of HB shortfalls and very much hope that the Heffernan judgment will result in the creation of smaller Broad Market Rental Areas (BRMAs) where these include a wide divergence in rent levels. In terms of the welfare to work agenda, lengthy journeys to work are costly both in terms of money and time, especially for lone parents juggling childcare and other family commitments. Yet no allowance is made for this factor in setting BRMAs.
- The single room rent restriction continues to be a major source of unfairness and problems for young people seeking to set up home and often managing on very limited budgets for the first time. Bureaux report no evidence that the LHA has eased this problem, which is exacerbated by the lack of shared accommodation in many parts of the country. The restriction applies whether or not the young person is in work, and the resultant housing insecurity can make it very difficult to seek and hold on to a job.
- The application of the single room rent restriction to single people aged 25 and over who choose to live in shared (rather than self contained) accommodation is an unnecessary complication and unfair as it is inconsistent with the general approach of LHA. It is also a common source of hardship given how often the shared room rate results in a shortfall. The £15 per week “cap” would be sufficient to ensure that claimants in this position did not benefit excessively from renting shared accommodation.
Payment of housing benefit
There are good arguments for encouraging claimants to have their HB paid to themselves rather than to their landlord, where they will be or are already in the labour market. However there would be considerable risks in simply extending the mandatory approach used in private sector LHA claims to the social sector where there are undoubtedly a far higher proportion of vulnerable tenants who have difficulty managing their financial affairs. We believe that a better way to take forward/develop? this agenda in the social sector would be to recognise the key role which social landlords can play in this area.
We would like to see proposals in the housing green paper to ensure that all social landlords provide access to schemes which help improve tenants’ financial capabilities and budgeting skills where these are needed. These schemes would include help with opening and managing bank accounts and spelling out the advantages to tenants of choosing to have HB paid direct to themselves in order to make it easier to manage the rent payment when in work.
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