Universal Credit rules for tenants which can affect landlordsV1-JW-20161005

Introduction

This Guide covers a number of rules and procedures under Universal Credit for tenants which can have an impact on landlords, particularly due to the possibility of payment of benefits to landlords being suspended or tenants not having enough income so that they fail to pay the rent in order to cover other payments.

How does Universal Credit operate?

Universal Credit is a means tested benefit. It is calculated on a calendar monthly basis (not a weekly basis as at present for most benefits). There is a taper of 65% of earnings and at the heart of Universal Credit is the idea that it pays to work. Certain earnings will be disregarded altogether as claimants are entitled to a work allowance, i.e. an earnings disregard, and then the taper applies to earnings so that claimants can retain more of their earnings than at present.

Work allowances / taper

This is a disregard for earnings for those who receive UC but are in work. UC will, in due course, incorporate the tax credit system. Under the current tax credit regime claimants are encouraged to enter work via hours rules which provide an addition to income when a minimum number of hours are worked, i.e. 16 hours per week for a single parent and 24 hours between a couple who are parents. UC replaces this with the work allowance, but at the same time there will be conditionality requirements which will retain minimum hours requirements - see below under "In work conditionality".

As a result of the 2015 summer budget significant reductions have been made to the availability of work allowance for those who are eligible for housing costs under UC. They will now only be entitled to a lower work allowance. From April 2016 this means also that work allowances are only available for those who rent where they are responsible for at least one child (or qualifying young person) or have limited capability for work. If the tenant is neither responsible for a child/young person and is capable to work then no work allowance is available. For a single claimant or a joint claimant who is responsible for one or more children/young persons or who has limited capability for work (or at least one of them has limited capability for work where they are joint claimants) the work allowance is £192 per month. They can keep this amount without it affecting their UC entitlement.

Subject to any available work allowance, there is an earnings taper under which 35p in the £1 of earnings can be retained by the claimant. In other words, for every £1 earned 65p of UC is then lost. It should be noted that under UC, unlike tax credits, earnings are calculated after deduction of tax/NI. For working tenants this is bad news as it means that they will in effect lose part of their UC award which then helps to meet their contractual liability for rent. This is going to reduce further the incentive for work. This has to mean much more emphasis will be placed in due course on work conditionality. This will also have consequences for landlords, because breaches of conditions can lead to sanctions and suspension of benefits.

The Government intend to limit the child element of tax credits and UC to two children as from April 2017. This means that new claims from families with more than two children will go to tax credits rather than UC until November 2018. Thereafter new claims from families with more than two children will be taken through UC. Families already on UC who have a third child after April 2017 will remain on UC but only receive two child elements.

The Government also intend to remove the higher rate of child element from the first child receiving UC. This will apply where the first child is born after 6th April 2017.

Out of work conditionality

An important element of Universal Credit is conditionality. Claimant commitments are required. Various conditions will be imposed and where there are joint claimants both claimants will have to sign up to these conditions. These will include requirements such as seeking work in appropriate circumstances for unemployed claimants. Those in part-time work will be subject to conditions to try to obtain more hours. There are sanctions involving loss of benefit and for not complying with the condition. If, at the outset, a potential claimant refuses to sign up to conditions the claim will be disallowed. This can apply where there are joint claimants and one of them refuses to agree to a condition.

These commitments are being introduced across the UK in respect of the legacy benefits in advance of Universal Credit being introduced.

In work conditionality

At the moment, conditionality applies only to those who are out of work, with the very limited exception of some trials which are currently taking place around in work conditionality.

The introduction of in work conditionality is a major departure and inevitably it is likely to take time to implement and get right. From the landlord's perspective, breaches of conditions can lead to sanctions and the withdrawal of benefits. In effect, in work conditions will largely reflect the outcomes expected of keeping to the rules under the current benefit system through hours worked rules under tax credits, i.e. a minimum of 16 hours per week for a single parent, or alternatively standard work patterns (full time working) where there are no barriers to working such as caring responsibilities or disabilities. Requirements will be greater for single parents with children of secondary school age who will be expected to work full time hours. Similar expectations will apply to the second earner in a couple where previously none have existed under the tax credit regime.

Sanctions

Payment of benefit can be stopped for a period of time if a claimant breaks a condition. This is known as a sanction. For example, it can be imposed for failure to attend an interview with DWP. A considerable number of these sanctions are being imposed. The length of the suspension increases for second and subsequent breaches of condition. Obviously landlords can be affected directly when benefits are stopped.

Financial Responsibility in preparation for work

Importantly for the PRS, the Government are pursuing a policy of using Universal Credit to improve financial responsibility and financial management skills on the part of Claimants. Also they are trying where possible to model Universal Credit in the same way as applies to those in work. This is why payment is normally to be made monthly because the Government consider this models the payment pattern for the majority of those in work (around 75%).

Personal Budgeting Support

The intention is that there will be advice services available to help people budget. These will operate at a local level through partnerships operated by DWP, e.g. in conjunction with local authorities. At the outset it is intended that DWP identify those who need support - see further below. There will be a system of local support networks operated by DWP in conjunction with local authorities

Transitional protection provisions

The Government have given assurances that existing claimants will be protected and there will be transitional provisions to make sure that no-one is worse off. However, if an existing claimant ceases to claim for any reason and then reclaims, these transitional provisions will no longer apply.

Transitional protection is intended to ensure that there will be no cash losers directly as a result of the migration to UC from existing benefits where circumstances remain the same. It operates by providing a cash top up according to the difference between the claimants entitlement under the current system and any lower UC award. If the UC award increases, this transitional protection is reduced to keep the income on a part with the point of leaving the current benefit system. If circumstances change the transitional protection ends. As yet we do not have a detailed list of the circumstances which will end transitional protection but they could include things such as a partner leaving/joining the household, a UC award ending or a member of the household stopping work.

The disabled

There is to be a separate system known as personal independent payments for the disabled which will operate alongside Universal Credit.

The benefit cap

UC (along with other benefits) is capped so that the maximum amount payable for couples (and single parents with children) is capped at £500 per week and for single people £350 per week. It is proposed that from Autumn 2016 onwards the maximum amount is reduced and different amounts are payable in London and outside London. The figures in London will then be £442.31 per week for couples and £296.35 for single people. For single people in London the maximum will be £384.62 per week and outside London £257.69 per week.

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