I never thought that I would argue that paying HB direct to tenants is a good thing for social landlords. Yet it is and we are back to the old Elephants in the room to see this, the fundamental flaw and the systemic flaw in the overall benefit cap (OBC) on which I developed as a posit and have blogged about in plenty of detail.
The operation of the OBC 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 anount of £100pw (£500 less £400) to be paid TOWARDS rent.
Toward rent is significant as until OBC comes in next April non-working social tenants get 100% of their social rent paid in HB. Yet from April 2013 they wont and arrears will build up. If the rent is £130pw and HB only pays £100pw, their 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 build up and social landlords have been vociferous that the direct payment to the tenant of HB rather than direct to 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 HB 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 – lets 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 HB paid. Yet the OBC changes this and the days of 100% of social rent being paid by HB are over come next April when the OBC comes in.
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 DJ for this. So what does the DJ 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 – 6 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 OBC – that it penalises the larger families. A couple with 5 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 couple with 6 children will receive about £490pw in welfare benefits meaning they will receive about £10pw towards their social rent!)
A DJ order typically says pay full rent plus £5pw now and for that to continue the DJ will know it mean ordering the tenant to find £55 per week from welfare benefits as opposed to the previous £5pw – an 11-fold increase!! [If social landlords havent lobbied the judiciary on this huge issue they need to do so asap!]
What I suspect has to happen is the DJ will still have to order ‘full rent plus £5pw’ and will do so because the choice of what to spend all benefit income resides with the tenant. If HB was paid direct to the social landlord which would expose that the tenant cant afford even to live in social housing because of the OBC then we would see DJs 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 5 child family will have their HB cut massively (and HB is the only benefit to be cut because of its residual position in the operation of OBC) shortly because of the systemic flaw it will see 4 child families, then 3 child families etc. Each year more and more social tenants will lose HB altogether and more and more will have it cut by the cap. Possession orders will go through the roof and regardless of whether HB is paid directly to tenant or landlord.
The OBC with its fundamental and systemic flaws is the elephant in the room and because of these flaws it makes sense for landlords to have HB paid direct to the tenant and not to the landlord as in simple terms if HB was paid as now direct 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!)