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Five-week Universal Credit wait creates spike in rent arrears

Paloma Kubiak
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Paloma Kubiak

The long Universal Credit first payment wait means applicants build up an average £240 of rental arrears after making a claim with vulnerable people at greater risk of homelessness, a think tank suggests.

For the majority of social housing tenants, the experience of claiming Universal Credit (UC) is accompanied by a significant increase in rent arrears, according to think tank, The Smith Institute.

It looked at the impact of UC on rent arrears for council tenants in London and found few are able to meet their other costs from the very start of a claim.

Based on analysis of 3,373 rent accounts of social housing tenants resident across 12 London boroughs in the three months to September 2019, the institute found that arrears rise sharply in the weeks immediately following a UC claim before plateauing after approximately 12 weeks.

On average tenants build-up £240 of rental arrears after they make a UC claim. In the initial week, two-thirds of tenants underpay with 30% of rent owed going unpaid. One in three (35%) of accounts in the first week on UC underpay by 75% or more. This drops to around one in 10 by week 20.

It found that larger underpayers disproportionately contribute to arrears as those with the highest 20% of arrears contribute to half of the total owed.

Cllr Muhammed Butt, executive member for welfare, inclusion & empowerment, London Councils, said: “This leaves us with the unavoidable conclusion that it is the fundamental design of Universal Credit in the form of the five-week wait that it is driving increased financial insecurity, and until the negative impact of those five-weeks without support is ameliorated claimants will continue to suffer.

“London Councils has previously argued that the simplest and fairest way to fully nullify any negative financial consequences arising from the waiting period would be to replace advance payments with a non-repayable grant. The findings of this report serve to underline the urgent need for this change.”

This Smith Institute report, commissioned by Southwark Council, did suggest that Alternative Payment Arrangements (APAs) make a significant difference.

One in five (20%) of accounts had an alternative payment in place, which means their housing element of UC is paid directly to their landlord.

For those accounts, arrears average 48% before the APA was in place. At a similar point, arrears totalled 18% for non-APA accounts. After that point arrears average around 10% for both APA and non-APA accounts. For accounts with two-months of arrears, those with APAs saw arrears rise by £279 but those without APAs saw a larger rise – averaging £640.

As such, it has made three recommendations:

  • Reduce the five-week wait to help prevent the build-up of large arrears in the period. While this change is being implemented, advance payments should be replaced with a non-repayable grant to provide immediate support to claimants.
  • Greater use of APAs by social landlords to reduce the number of tenants with large arrears.
  • Direct payment to landlords as the default to more fully reduce the number of tenants with large arrears.

The research was conducted before the economic impact of Covid-19 led to almost half a million Londoners claiming Universal Credit. As of May 2020, the total number of households claiming UC stands at 5.3 million but the think tank said the increase is unlikely to have changed the financial difficulties experienced by claimants as identified in its report.

Butt added: “This important research clearly shows that claiming UC is accompanied by a significant spike in rent arrears for the majority of council tenants. The five-week wait leads to low-income households piling up debts, which undermines UC’s effectiveness as a welfare support measure, but also contributes to the serious finance pressures faced by councils and other social landlords.

“We’re calling on the government to fulfil its pledge to ensure UC works for the most vulnerable, which must surely include every claimant unable to afford their rent due to the five-week wait. Addressing the problems caused by the five-week wait should move to the top of the policy priority list – especially since the devastating economic impact of Covid-19 means more and more households are relying on UC to pay their bills.”