Bedroom Tax – the real arrears issues we can’t discuss?

Did Steve Webb the junior minister at the DWP advocate that tenants affected by the bedroom tax should not pay last week?

Yes but he wouldn’t realise why as he clearly knows bugger all about rent arrears!  (Yet neither do social landlords….read on!)

The Hansard report of the debate sees him saying at Column 345:

Steve Webb: If I may, I shall respond to the Chairman of the Select Committee, who made an important point about those who are “intentionally homeless”. Although it is for local authorities to make decisions on homelessness applications as they do now, under current statutory homelessness legislation, if the only reason for the person’s homelessness is a reduction in benefit that is outside their control they should not be considered intentionally homeless by the local authority. I can put that on the record and hope it is helpful

This is intriguing.

Firstly, it assumes that if a social tenant did not pay the £14 per week average make-up they will have to pay from April 2013 that a district judge would award an outright possession order for arrears which would lead to eviction and homelessness and each local council having to decide if the homeless family was intentionally homeless.

Having taken many tenant arrears cases to the crown court and also having spoken to Housing Officers who still do that role I don’t think we can assume this would happen at all.

Moreover, I have been speaking with social landlords, housing lawyers and with court officials too and a broad consensus of opinion is that many think just bedroom tax arrears alone will not even see district judges (DJs) even a ward a suspended possession order and that is really significant and a nightmare scenario for the finances of social landlords.  It remains to be seen how district judges will use their discretion in these matters and, as any arrears officer will know, that will vary from court to court.  In short some courts tend to issue a much higher proportion of possession orders than even their neighbouring courts and this varies over time too reflecting the key role of individual district judges with even in the same court one DJ issuing a much higher percentage than another district judge.

To explain fully it is important to outline current typical practices ahead of the bedroom tax being imposed.

Unless the social landlord uses Ground 8 the decision for the District Judge is wholly discretionary.

The DJ can award an outright possession or the DJ can issue a suspended possession order (SPO) which typically says the possession (or ultimately eviction) is suspended and based upon the tenant paying the full rent and £3.40 per week off the arrears.  The issue of the FULL rent will change with the bedroom tax as unlike now the social tenant is not getting 100% of the rent paid by HB; it has a 14% deduction or a 25% bedroom tax deduction.

So the typical SPO terms of full rent plus a small weekly amount off the arrears is not open to the DJ in a bedroom tax case. The bedroom tax fundamentally changes the typical arrears case which in any case overwhelmingly sees a suspended possession order issued rather than an outright possession or eviction order.

Secondly, and flowing from that, is what will a DJ order in a bedroom tax case.  Note well I am not advocating that a social tenant should not pay the bedroom tax; rather I am exploring Steve Webb’s view and clear steer to social landlords and District Judges on intentionality which assumes that the arrears are solely made up of bedroom tax deductions and this leads to an outright possession order and eviction.

If the DJ wanted to award a SPO based on full rent and £3.40 per week off arrears – the typical current position – then this means the social tenant would on average have to find £18 per week to stay at the property made up of £14.67 average bedroom tax and the £3.40 nominal payment off the arrears.  Yet DJs are rightly reluctant to see a social tenant on welfare benefits pay more than £3.40 per week from welfare benefits toward rent.  That is why the DJ can no longer award such a typical SPO as they do now.

So what will a DJ order?  This is and always has been notoriously difficult to assess even ahead of the bedroom tax.  Ask any arrears officer and they will say I took a cast-iron case today and DJ only awarded a SPO, or I took a pretty flimsy one and the DJ awarded outright possession – you can never tell in other words.  Yet it clearly needs discussing as to what options are open to a DJ to award as if they will not order an outright possession and the SPO route is problematic then social landlords may well suffer huge costs of arrears themselves, administering arrears, court costs and especially in light of the ‘intentionality’ steer from Steve Webb, a huge upsurge in bedroom tax affected tenants not paying the 14% or 25% bedroom tax make-up.

If social tenants know this clear intentionality steer from Steve Webb and the coalition government – which would appear as a clear objective – then social landlords may well have to suffer a massive increase in bedroom tax arrears.

I must admit I was troubled in releasing this as for me once tenants realise the above then it is tantamount to tenants NOT paying the £14.67 bedroom tax make up each week and for the avoidance of any doubt whatsoever I am not advising or advocating this.  Yet tenants will find out sooner or later in any case and private emails I have received from very reliable sources inform that some large HAs are saying they will instigate possession proceedings after just 4 weeks of bedroom tax arrears or less than £59!  I can only imagine the very short shrift they will get from district judges taking such cases!

However, this issue will come out as soon as social landlords take cases to court which if the above is correct is going to be in about 7 weeks time – and social landlords cannot and should not adopt the Ostrich syndrome over this or think that the issue will not become known to tenants.  The huge upsurge in social media and the many Facebook groups against the bedroom tax will circulate this information widely very quickly!

As an aside I love the perverse dichotomy of the many social housing professionals advocating social media as a way of operating and interacting with tenants yet who fail to see how SM use impacts on them with greater dissemination of housing practices and issues amongst tenants!  It’s a two-way street and word of how DJs do react to bedroom tax only arrears cases will spread like wildfire very quickly indeed!

This leaves a massive financial problem for social landlords as arrears are likely to grow significantly and quickly.  And for tenants too as the only way any landlord can mitigate against higher arrears is to charge higher rents and of course that becomes a problem for government and the public purse as the HB bill rises sharply.

Like many other aspects of the bedroom tax this is a total cock-up by the government and reveals the absence of any pre-thought on the matter; yet it presents huge problems for social landlords and the social housing model itself.

The social landlord naivety?

Social landlords have arrears policy as a top-down structure which sees Finance Directors making arrears policies and practices and imposing them on arrears officers on the ground.  These tend not to include any bottom-up approach which would see the humble arrears officer having an input on the reality of arrears in operational terms – a  ‘bricks and mortar’ approach not a ‘people; one.  What I mean by that is obviously and correctly finance directors see the collection of rent as a function alone and rent collection is not impacted by how tenants react or pay rent.  This has not been much of a problem in the past as HB tends to cover 100% of the rent set and two-thirds of social rents are paid through HB.  Yet the bedroom tax changes that and sees just 86% of rent paid by HB with a 14% deduction and as low as 75% of it with a 25% bedroom tax deduction.

If we then look at the National Housing Federation figures of who and where the bedroom tax will impact and on how many we see for example that Manchester will see over 30% of all tenants on HB will be affected and over 40% of working-age tenants affected.  That is a huge change and other Northern cities such as Liverpool and Salford not much further behind these huge numbers.

So if 66% of the rent is guaranteed now to a social landlord in Manchester with HB paying 100% of the rent that reduces to 46% of the rent roll guaranteed and creates a hugely increased exposure to arrears.

Let me put this simply – using my comments on the typical arrears practices what would negate any arrears proceedings would be if bedroom tax affected tenants paid just £4.67 per week off their £14.67 pw average arrears.  Any DJ seeing this and even though it means the tenant is accruing arrears of £10 per week would not in my view award a suspended possession order as the DJ would see that the social tenant is at least attempting to pay and is paying more per week than a court normally sanctions – the £3.40 per week – from welfare benefits.

The social tenant would and will put forward the argument that he or she had the choice between ‘heating or eating’ before the bedroom tax came in, before the below inflation welfare benefit rise and before the quadruple inflation gas bills came in and is paying all they can.  Further that the bedroom tax is out of their control and DJs will see this too – these are not hard arguments to make and they are viable ones.

Tenants are not stupid and they will see this angle too.  Yet social landlords don’t want this known and believe, with incredulous naivety, that it will not happen.  They are burying their heads in the sand over this as tenants, who don’t want to pay rent will, as any arrears officer will confirm, find a way not to pay rent.  Then add in the outrage 660,000 social tenant households feel about the bedroom tax and this will, in my view, become a much more common practice.

If the average social rent is around £83 per week then a £10 per week shortfall by 660,000 tenants becomes a £6.6m per week problem, a £344m per year added arrears problem for social landlords- a huge issue which I can see happening.  Even if you factor in all the £50m DHP this still can be a £300m per year issue (and not forgetting the £50m DHP budget for this includes £30m for JUST the first year we are told and presumably reduces to £20m in following years?)

Of course nowhere near all tenants affected by the bedroom tax won’t pay in this way and allows a £10 per week shortfall situation to occur.  Yet if 20% do it is still a £50m added arrears problem and of course the added administrative costs.

Further there are a number of less significant arrears issues that will emerge.  For example with the move to monthly payments of benefit which goes direct to tenants too, how many will simply pay 4 weeks rent and inadvertently believing they are paying all the rent?  There are 4.33 rent weeks in a calendar month or put more easily 52 rent weeks in a year so 12 payments of 4 weeks rent is just 48 weeks rent paid and hence 4 weeks in arrears!

Yet we see the typical social landlord response issued as dictat by finance directors being get the tenant signed up to a direct debit to avoid this.  That is naivety writ large as tenants affected by the bedroom tax simply won’t have the money in their account (presuming they indeed have one in the first place) and if they get charged for a DD bouncing then they will simply stop the direct debit in any case….and be severely pissed off with the landlord whom they will blame for this, however incorrectly.  That is a ‘person-based’ issue not a ‘bricks and mortar’ based one and this is what social landlords are missing to their cost.  Top-down dictats to get housing officers and arrears officers and receptionists and Uncle Tom Cobley and all to persuade tenants to set up direct debits won’t work.  While I fully understand social landlords reacting this way simply getting a tenant a bank account and setting up a direct debit is not going to work and landlords need to think smarter than this, much smarter.

The ONLY way for social landlords to mitigate the huge arrears problems the bedroom tax will create is to think smartly and remove as many of their affected tenants as possible from the bedroom tax.  The KHT scenario of reclassifying but smartly!  The 2.9 bedroom argument I have put forward is one such option and take a hit of 85p per property per week in rent reduction rather than expose you to a £10 per week hit as I outline above.  That option and argument deserves much greater consideration and if the sector did this what response could government have?  After all it is UP TO the landlord to describe the property ACCURATELY as government guidance says.

However, it is not just the arrears problem it is the problem of reputational risk which will see tenants paying, or more correctly not paying, once they get HB paid directly to them – a much bigger issue to social landlord survival than the bedroom tax, and I use the term ‘survival’ correctly.  Social landlords will go under with the combination of welfare reforms (bedroom tax, direct payments, monthly payment, council tax benefit removal and the overall benefit cap) which will no doubt see ‘rescue missions’ and in a decade or so about 20 super HAs only across the country with each having 200,000 properties….and more accountancy professionals brought in as finance managers with no knowledge of how customers (ie tenants) react and more top-down dictats such as this get the tenant on a direct debit as quick as you can and don’t do bugger all else policy!

That is the road to the death of social housing, a fabulously cost-effective model and massive economic national benefit that social landlords fail to shout from the rooftops!

And why don’t you!!! Social housing is half the price of its competitor, provides a better product and service than its competitor and has 1.8m customers wanting that product and service on a waiting list.  For f*ck’s sake any other sector of any industry would be a monopoly and lauded by all for providing the best product at the best price yet social housing is perceived as the housing of last choice!!  Social landlords make Gerald Ratner appear as an accomplished marketer for the pig’s ear they have made of the sector and now you mainly sit idly by and moan about the welfare reforms yet do very little to look at a solution.  That is ineptitude writ large.

I’m a housing professional and for lunch every day I go to a brewery for some pea soup! It’s lovely! I just wish it was more smartly organised!

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2 thoughts on “Bedroom Tax – the real arrears issues we can’t discuss?

  1. http://s0ciallyh0used.wordpress.com/2013/02/26/an-open-letter-to-any-mp-who-cares-about-this-country/ Many of us are proud of our Social Housing & have lived in it for decades.
    We pay equivalent (and in some cases, as in my own) more than the Mortgage costs for this privilege – & I call it a privilege, as as you have stated – Its a vastly sought after commodity!
    However that isnt because like diamonds etc, it cant be manufactured – Its because a ruthless regime has depleted it to almost extinction & with it created a whole “underclass” ( or perception there-of) of the people who live in Social Housing..
    I despair at what has happened to the UK in the last 2/3 decades – Shame on US .

  2. ‘If the DJ wanted to award a SPO based on full rent and £3.40 per week off arrears – the typical current position – then this means the social tenant would on average have to find £18 per week to stay at the property made up of £14.67 average bedroom tax and the £3.40 nominal payment off the arrears. Yet DJs are rightly reluctant to see a social tenant on welfare benefits pay more than £3.40 per week from welfare benefits toward rent. That is why the DJ can no longer award such a typical SPO as they do now.’ Is the author of this article suggesting that the court has discretion to make an order that overides the tenants legal obligation to pay rent then? If so he should know that this cannot be done. The £3.40 you refer to, which is actually £3.55 and will be £3.60 from 1/4, is the sum the court usually orders a tenant on benefits to pay towards rent arrears, not rent. A typical SPO will state that the tenant must pay weekly rent plus £3.60 towards the arrears.

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