Credit crunch

If the Devil is in the detail then he is dancing a jig around the regulations for the universal credit and the benefit cap.

Ok, I am exaggerating for effect but by how much? Take a look at the response (PDF here) from the Council of Mortgage Lenders (CML) to the consultation by the Social Security Advisory committee that closed on the opening day of the Olympics and you decide.

Many of the same points are being made by the CIH, NHF and others but they have an added impact coming from the organisation representing lenders that have invested £60 billion in social housing and cannot be easily dismissed by ministers as coming from the ‘housing industry’.

The CML accepts the time for debating the policy has passed and says it is encouraged by Lord Freud’s commitment not to implement the changes in a way that will undermine the financial viability of the sector.

But it warns:

‘We continue to be concerned that the combined effect of these changes…could be to destabilise landlords’ income streams with consequential impacts on lender and investor confidence in the sector as a whole, particularly the smaller to medium sized housing associations.’

It adds that the overall package of the universal credit plus other welfare reform and council tax benefit changes ‘could be disjointed and bring unintended consequences’.

And it criticises ‘the quality and limited extent of the impact assessments….which suggest only a patchy understanding of how the effects of this package will play out and take no account of how they will interact with other changes in welfare reform on the near horizon’.

Many people have highlighted the contradictions and the problems with the different elements of the package but the lenders have more reason than most to be concerned about the sector’s financial viability.

On the treatment of service charges, the CML warns that streamlining to just three eligible types ‘is a simplification too far and could leave landlords out of pocket with knock-on effects on their cash flow’. It is even concerned that shortfalls could impact on the maintenance of essential safety systems like fire detection and suppression and put homes at increased risk of damage and deterioration and mean landlords face hefty fines for health and safety failures. The DWP says there will be more detail in future guidance, but the CML ‘is concerned that vague specification in the regulations and reliance on guidance for this major cost element for landlords will ultimately lead to more charges being excluded than included’.

The same points are being made powerfully by charities running women’s refuges. Women’s Aid warns that the reduction in eligible service charges’ could  make refuges financially unsustainable and Refuge says this plus the impact of the benefit cap could result in the closure of its 297 refuges. Rhiannon Bury blogged yesterday about the continuing debate about the definition of ‘vulnerable’ and the imposition of the benefit cap.

On the bedroom tax, the CML is worried both about the regulations themselves and their implementation by landlords. It welcomes the fact that there is no prescriptive designation of what constitutes a bedroom but it is concerned about ‘widescale redesignation of properties of some properties in certain areas and the impact that this could have on landlord income’. It calls for a commitment from the DWP that the deduction rates will not be increased in the review of the operation of the size criteria.

It shares the concerns of the NHF that the definition of ‘exempt accommodation’ like supported and sheltered housing may exclude some schemes where support and care is provided separately and that this could ‘significantly undermine the viability of such schemes’.

What about others living in the ‘under-occupied’ home? Welfare reform minister Lord Freud has repeatedly pointed out that affected tenants could take in a lodger and that the universal credit regime will disregard their rent payment. However, the CML points out the absurdity that a tenant with a lodger will still be treated as an under-occupier: ‘it is slightly perverse that the claiming tenant should still be treated as under-occupying when an otherwise unused room is being let’. It also calls for clarity on the temporary absence rules: if students are away at college in term time but back in the holidays will there be a deduction when they are absent?

And how many people will really be affected? The number of people that the DWP estimates will lose their housing benefit entirely doubled from 20,000 in the first impact assessment in February 2011 to 40,000 in the latest in July 2012. ‘This all adds to unease in the sector (and which might also manifest in investor reticence) and an overall lack of confidence that government knows with certainty what the effect of measures such as this will be.’  Meanwhile the effect of the interaction of the benefit cap, the bedroom tax and rent direct ‘will be extremely difficult to predict and quantify’.

The CML says that all this uncertainty – different impacts in different areas, tensions between the DWP wanting to cut the benefit bill and the DCLG wanting associations to go for affordable rent and the fact that the results of demonstration projects and pathfinders will only be available after the regulations have been passed – leads to ‘lenders and investors in the sector viewing it as increasingly risky’ at a time when the government wants to build more affordable homes to stimulate growth.

It concludes that all the changes are so significant that the DWP needs to get them right from the outset. That will take more time than has been allowed and there are still ‘too many variables and too many blanks’ to be filled in later:

‘The social housing sector is an intricate machine; significant manipulation of policy and funding levers without fully understanding the potential impacts, is likely to cause major disruption to the way the sector works, both in terms of its ability to support its tenants and its ability to attract investment for development of new affordable housing.’

As the universal credit moves closer, the doubts about the details grow larger. There is still widespread concern about the impact of direct payment. The great prize is meant to be simplicity for claimants and clarity that they will always be better off in work. However, the CIH points out that even this is contradicted by the proposed abolition of extended payments for the long-term unemployed.

And all of that is before we get to the worries about whether the IT system will actually work. There is still time to find the devil in the detail but it is beginning to run out.

Originally posted on my blog for Inside Housing.


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