We’re Housing Scotland November 2013

WELFARE RIGHTS AND WRONGS:A Good Practice Guide To Welfare Reform

www.sfha.co.uk

Produced with financial support from the Scottish Government

Credits

The SFHA gratefully acknowledges the financial support of the Scottish Government for the production of this guide.

The author would like to thank the advisory panel for their input to the guide:Tim Calderbank – Caledonia Housing AssociationJeremy Hewer – Scottish Federation of Housing AssociationsClair Malpas – Cassiltoun Housing AssociationRhona Penman – Link Housing AssociationJoy Watson – Hillcrest Housing Association

And to those who agreed to be interviewed and provided case studies for the guide.

The guide was written by Nick Hopkins of Nick Hopkins Consulting (www.nhhrconsulting.co.uk)

The Housing and Welfare Reform Library and the Knowledge Hub

This library is accessible on the Housing and Welfare Reform Library:

www.welfarereformscotland.co.uk

This guidance is also accessible on the Scottish Government’s Housing and Welfare Reform Knowledge Hub:

https://knowledgehub.local.gov.uk/group/scottishgovernmenthousingandwelfarereformgroup

It is hoped that social landlords will promote both the Housing and Welfare Reform Library and Knowledge Hub to all their staff and that managers and their teams will help make it dynamic by uploading information about their own practice approach or wider examples they have come across.

1.Understanding

the Issues

Produced with financial support from the Scottish Government

• Understanding Welfare Reform sets out an overview of welfare reform and the key themes within it. It describes the major changes under each element of welfare reform, their impact on tenants, and their significance for social landlords.

• Understanding the Financial Problems Facing Tenants sets out the context, in terms of the money/ financial inclusion issues affecting tenants, in which welfare reform is set.

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1.1 Understanding Welfare Reform

Introduction Every government since the founding of the welfare state has made changes to the benefits system. In that sense, ‘welfare reform’ is nothing new. What is new, is the scale and pace of reform currently being undertaken. The Welfare Reform Act 2012 brings into force perhaps the biggest set of changes to the benefit system since the National Insurance Act of 1946. There is some continuity from previous governments in the concerns that are driving reform. The new reforms are designed to:

Deal with disincentives to work.

Make the system more responsive to changes in circumstances within a household.

Make the system more reflective of changes in society. However, there are significant differences:

The reforms are designed to be a key element in the government’s austerity agenda, with targets for the overall savings they are to achieve.

The reforms are intended to create a simpler system, easier to navigate and understand for claimants, in which income is more predictable, contrasting with a current system that it is argued is excessively complex.

Previous reforms have involved both older people and people of working age. In contrast, the current UK Government is committed to insulating older people from the impact of cuts to the benefits bill, and has instead focused on benefits for people of working age.

Elements of Change There are three main elements to the changes being brought in;

Three key ‘transitions’ involving the replacement of benefits by another benefit, immediately for new claimants and gradually for existing claimants of the legacy benefit.

A number of ‘salami slice’ cuts being taken from entitlements.

The devolution/ localisation of some benefits. General and Specific Impacts In the discussions that follow of each of these elements there is discussion of the specific impacts of particular changes to the benefit system. There will also be a series of impacts common across the changes, with tenants at risk of:

Being pushed further towards poverty,

Being placed at greater risk of experiencing debt and other financial problems,

Having reduced ability to pay their rent, unless they can find employment, increase their hours in work, find other ways of increasing their income or somehow reduce household outgoings.

NB: Extended Timescales, and Continuing Complexity Welfare reform is taking place across a long period of time. The introduction of Employment and Support Allowance began in 2008, and it will be at least the end of 2017 before current reforms are fully implemented. Further change, particularly in the context of changes in Government or constitutional change, cannot be ruled out beyond that point. The incremental way in which reforms are being rolled out means that although we are by now about half way through the welfare reform process in terms of time, we are still in the early stages in terms of its impact, despite those effects already being felt by tenants.

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This extended timescale means that at different points over the next few years:

Some tenants will have made the transition to new benefits, whilst others will not.

Some tenants will have made the transition to some new benefits but will still be awaiting their transition to others.

Further complexities will result from particular aspects of the changes:

Not all unemployment or income related benefits are being parcelled up into Universal Credit.

Some older people are not entirely protected from welfare reform under Universal Credit.

The devolution of control over the replacements for Council Tax Benefit and the Social Fund. For those engaging with tenants on benefits issues, this means that:

Understanding the benefit system will require knowledge of both ‘before and after’ systems.

Understanding where a tenant sits in the benefit system now, and where they may sit in the future, is more of challenge.

Predicting tenants’ financial future may become more of a challenge.

Supporting tenants to access their entitlement may mean dealing with a number of different processes and systems, in a way that may be at least as, or even more complex than, under the current system.

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1.1.1 Transition I: The Creation of Universal Credit The importance of the introduction of Universal Credit for social landlords cannot be overstated. Given the income profile of social rented tenants, the vast majority of social rented tenants of working age will be reliant on Universal Credit for some of their income. Rationale Behind Universal Credit Universal Credit will replace most means tested benefits and the tax credit system, aiming to:

Bring together a range of working-age benefits into a single streamlined payment.

Help claimants and their families to become more independent.

Improve work incentives. Smooth transitions into and out of work, supporting a dynamic labour market. Simplify the system, making it easier for people to understand, and easier and cheaper for

staff to administer. Reduce in-work poverty. Cut back on fraud and error.

Universal Credit has also been designed explicitly to encourage people to manage their money differently, and to take responsibility for more elements of their household expenditure. Timescale for Change The timescale under which Universal Credit will be delivered continues to be uncertain. Implementation of the transition has slipped due to problems with IT and a range of other issues. The Government remains committed to completing the transition to Universal Credit by 2017. However, it has acknowledged that only a small proportion of potential claimants will have made the transition to the new system by March 2015. The focus is currently on the piloting of transition to Universal Credit in a small number of Job Centre in the North West of England, with a further six Job Centres, including Inverness as the Scottish pilot, becoming involved between October 2013 and March 2014. Further updates on the situation with Universal Credit will be posted on the SFHA website.

Entitlement Legacy Benefits Universal Credit will replace:

Income-based Job Seeker’s Allowance.

Income-based Employment and Support Allowance.

Housing Benefit.

Local Housing Allowance.

Working Tax Credit.

Child Tax Credit.

Income Support. Even after the full introduction of Universal Credit, people will continue to claim contribution- based Jobseeker’s Allowance and Employment and Support Allowance, though the conditions and rules attached to these benefits will be changed to align with Universal Credit. Calculating Entitlement A household’s Universal Credit entitlement will be made up of:

Personal amounts for a single claimant or couple;

Additional amounts for: o Children (or qualifying young people), with additional amounts for disabled and severely

disabled children.

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o Rent (or, to a limited extent, mortgage) costs. o People with limited capability for work or work-related activity. o People with regular and substantial caring responsibilities for a severely disabled person.

Disregards and Tapered Withdrawal of Entitlement People will be allowed to earn a certain amount before their Universal Credit begins to be withdrawn. These earnings ‘disregards’ will be set at different amounts dependent on household composition, with one disregard available per household. Disregards will vary for:

Single people and couples without children.

Lone parents with one or more children.

Couples with one or more children.

Disabled singles or couples. Above the household disregard level, Universal Credit will be withdrawn based on a taper of withdrawal of 65 pence for every additional pound earned.

Conditionality and Sanctions The Claimant Commitment All Universal Credit claimants, including those in work, will have to sign a claimant commitment. The responsibilities they have under that claimant commitment depend on which conditionality group they are placed in, largely determined by the level of their caring responsibilities, or the impact of their health on their ability to work. As an illustration those judged to be work ready, i.e. those currently eligible for Job Seekers Allowance will be required to:

Look for work.

Be immediately available for any work which pays National Minimum Wage and is within 90 minutes of home.

Attend JCP interviews

Participate in mandatory employment programmes. More detailed information is available on claimant commitments for different groups at https://www.gov.uk/government/publications/universal-credit-and-your-claimant-commitment-quick-guide. New Sanctions Regime The Universal Credit claimant commitment will be backed by a stricter sanctions regime (already introduced for Job Seekers Allowance claimants in October 2012). The sanctions regime is also becoming less flexible, no longer being discretionary, a shift from the previous system in which a local DWP decision maker determined the length of application of a sanction.

The level and length of sanctions that will be imposed on claimants depend on:

The extent to which the person is job ready.

The particular way in which they have failed to meet their claimant commitment.

The number of times that they have failed to meet their claimant commitment. The most job ready claimants may be sanctioned for 3 months for their first failure to take up an offer of paid work/ refusal to apply for a job, or if they leave a job voluntarily. Second and third sanctions for these actions are six months and three years respectively. Sanctions for other ‘failures’ are less severe. Sanctions for more vulnerable groups will last for less time, assuming they re-engage with the system. Again, more detail is available at: http://www.cpag.org.uk/content/escalating-conditionality

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Hardship Payments Hardship payments will be available for who are sanctioned. However:

These payments will only be made on condition that those sanctioned have complied with all work-related requirements in the previous compliance period.

Any payment will be ‘recoverable’ from future UC payments once sanctions are lifted.

Accessing payments may involve a waiting time. Additional Change - Conditionality for People in Work People in work claiming Universal Credit will be subject to a conditionality regime, a significant change from the current tax credit system. People with weekly earnings less than those obtainable from a 35 hour a week job paid at minimum wage will be expected to seek to increase their hours/ find additional work. Piloting of this approach begins shortly. There remains considerable uncertainty about how this aspect of the reforms will work out in practice. There are concerns that it will penalise people who are underemployed, i.e. who want to work more hours, but cannot find jobs which allow them to do so. Monthly Assessment and Real Time Communication The Universal Credit system requires real time communication between the PAYE system at HMRC, and the DWP’s computer system, allowing the automatic communication of changes in earnings to the DWP without involvement from the claimant. Universal Credit will be paid monthly and in arrears. The monthly assessment period will run from the effective date of the claim, and each subsequent assessment period will begin on the same date of each month. Monthly assessment will mean that payments will only be made to claimants with a full month’s entitlement. The effect of changes in circumstances on entitlement will be calculated as if they had occurred at the beginning of the month. Universal Credit and Financial Behaviour Universal Credit has been explicitly designed to change the behaviour of claimants:

Encouraging them to manage their money on a monthly rather than fortnightly or weekly basis.

Increasing the number of payments over which they are responsible, in particular making them responsible for the payment of their rent if they are a social rented tenant.

Pushing them towards making claims and undertaking key money management tasks online. Changes in Payment and Claiming Methods The introduction of Universal Credit will see a number of changes to the methods of payment and claiming.

Payment will be made in a single lump sum on a monthly basis. The change to a single monthly payment aims to reflect the situation in the workplace of being paid a monthly salary, and is intended to help the transition to work of people who will need to become used to being paid in this way.

The single payment will be to a single member of the household. Currently, different benefits may be paid to different adult household members.

The DWP expects to make the vast majority of payments through BACS transfer into bank accounts.

The DWP intends that over 80% of claims for Universal Credit will eventually be made online1. There will be no paper application forms for Universal Credit, anyone not wishing to

1 The Work and Pensions Committee reports the DWP as referring to ‘take up of online access’ on the following trajectory,

50% in 2013, 55% in 2015, 80% in 2017. The Committee report suggests that it is not clear what the DWP means by ‘take up of online access’. Referenced from ‘Universal Credit Implementation: Meeting the Needs of Vulnerable Claimants’ House Of Commons Work and Pensions Committee 22

nd November 2012.

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make an online claim will have to make phone contact with the DWP, and will have their details taken and inputted into a digital claim form.

Payment to Tenants not Landlords Universal Credit includes a housing element, replacing Housing Benefit. This will be part of the monthly payment made directly to the tenant, who will then be responsible for paying their own rent. The DWP has indicated that there will be two groups of people excepted from this change, with the housing element within their Universal Credit being a ‘managed payment’ to the landlord:

People who are classed as ‘vulnerable’.

People in significant arrears who reach a particular trigger point, at which the landlord can request to have ‘managed payments’ made to them.

The assessment of vulnerability on which the decision to have a tenant’s rent paid through managed payments will be made based on two sets of factors, which will also be looked at when considering if it will be necessary to pay a claimant more than once a month, or to make a payment to more than one person in a household. Tier one factors, indicating a probable need to be placed on managed payment, include people who have/ are:

Drug / alcohol and / or other addiction problems e.g. gambling.

Learning difficulties including problems with literacy and/or numeracy.

Severe / multiple debt problems.

In temporary and / or supported accommodation.

Homeless.

Affected by domestic violence / abuse.

A mental health condition.

Currently in rent arrears / threat of eviction / repossession.

Young, either a 16/17 year old and / or a care leaver.

Families with multiple and complex needs. Tier two factors, indicating a possible need to remain on managed payment, include people who have/ are:

No bank account.

Subject to third party deductions from their benefit (e.g. for fines, utility arrears etc.).

A refugee.

A History of rent arrears.

Previously been homeless and / lived in supported accommodation.

Affected by a physical disability or sensory impairment.

Just left prison.

Just left hospital.

Recently bereaved.

Poor English language skills.

Ex Service personnel.

NEETs - Not in Education, Employment or Training. The working assumptions from the DWP are that people will be supported to leave the vulnerable category of claimants, and that if they trigger managed payment through their level of arrears, they will be returned to personal receipt of the housing element of Universal Credit once those arrears are reduced.

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Lessons from the Direct Payment Projects The DWP has been exploring issues around direct payment with six pilots, in Oxford, Southwark, Shropshire, Torfaen, Wakefield, including a Scottish pilot with Edinburgh’s Dunedin Canmore Housing Association. Ten Learning Points from the Pilots2:

1. Rent arrears are very likely to increase. 2. Engaging with tenants may prove more challenging than expected. 3. There are substantial resource challenges involved in reaching all the tenants who may be

affected, and in providing them with appropriate support. 4. The data currently held by landlords is unlikely to be enough to enable the assessment of

the extent to which they are at risk from being responsible for paying their rent. 5. The DWP’s tool for assessing tenants as vulnerable may require further refinement. 6. The vast majority of tenants have bank accounts, and clear strategies for money

management, though those strategies may vary considerably. 7. All areas involved in the projects saw rent arrears rise. Arrears are likely to rise, not solely

amongst tenants with existing arrears problems, but also amongst tenants who are currently not in arrears.

8. Tenants do not like automated payments as much as landlords, and use short budgeting cycles to manage cash. There may therefore be limits to the extent that landlords can get people paying by direct debit.

9. There remain issues for unbanked tenants in opening bank accounts, including around identification.

10. The direct payment projects have been in part dependent on the relationships between social landlords and local authority Housing Benefit departments. These will disappear under Universal Credit.

Financial Impact of the Changes on Tenants3. Potential Positive Impact The DWP’s Impact Assessment on Universal Credit claims that its introduction will have three key positive effects:

Greater simplicity of the benefit will lead to a substantial increase in the take up of unclaimed benefits.

Entitlement changes will increase incomes among lower income groups.

Increased work incentives with increased incomes through a lower rate of withdrawal of payments when people begin to earn.

For social landlords it may also be possible that moving in and out of work becomes less disruptive of tenants’ payment of rent, no longer involving moves on and off Housing Benefit. The DWP’s estimates that the overall effect of the transition to Universal Credit will be:

A higher entitlement to benefit for 3.1 million people with 1.9m gaining by more than £100 per month.

No change for 2.4 million people.

Lower entitlement to benefit for 2.8 million people. Transitional Protection Transitional protection is being put in place for existing claimants of Legacy Benefits who move to Universal Credit to ensure that they do not suffer an immediate substantial financial loss as a result and do not ‘fall off a financial cliff.’

2 ‘Direct Payments Demonstration Projects: Learning the Lessons Six Months In’, Department for Work and Pensions, May

2012, and interview with representative from Dunedin Canmore HA. 3 This section makes considerable use of Tarr A and Finn D ‘Implementing Universal Credit, Will the Reforms Improve the

Service for Users? JRF/ Centre for Social and Economic Inclusion, 2012.

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Transitional protection freezes the cash value of the claimant’s current award, and stays in place until the cash value of entitlement to the new benefit has caught up, unless there are significant changes in the claimant’s circumstances. These include substantial changes in earnings, a partner leaving or entering the household, and the loss or gain of any of the elements that make up Universal Credit - including a change to fit for work status. Given the extent to which tenants in low paid employment may be likely to move in and out of jobs, it is possible that transitional protection will not last for a long time for many of those who will lose from Universal Credit. Even where transitional protection is in place, new claimants, with the same needs as longer standing claimants, will not be able to access levels of support previously considered appropriate for their needs. Sanctions A significant number of tenants are likely to fall foul of the conditionality requirements under Universal Credit, or are already falling foul of the conditionality requirements under Job Seekers Allowance or Employment and Support Allowance. Those who are vulnerable or live chaotic lives will be particularly at risk. The sanctions placed on them as a consequence may push them into financial crisis. NB: One critical and simple task that staff, particularly those delivering tenancy support services, are well placed to undertake is to remind and encourage tenants subject to conditionality requirements to fulfil them. This may make the difference between a tenant being able to cope financially, and a tenant being in financial crisis. Changes under Universal Credit Affecting Disabled People Four changes under Universal Credit will affect disabled people/ families with disabled children:

Under the current tax credit system, families with disabled children in receipt of Disability Living Allowance are entitled to additional support through the disability related element of child tax credit. Unless a child is registered blind or is on a high rate of DLA, that entitlement will reduce under Universal Credit from £57 to £28 at current rates.

People claiming middle or highest care component of DLA can currently claim the Severe Disability Premium on top of any income related benefits that they receive. The Severe Disability Premium is currently paid at £58.20 per week. It will be abolished under Universal Credit.

Disabled people in work are currently able to claim the disability related element of Working Tax Credit, which is payable to people with a disability or condition that makes it more difficult to fill and sustain employment. This is worth £54 per week. Under Universal Credit anyone requiring additional support because they are disabled will have to undergo a Work Capability Assessment. If found fully fit for work they will get no extra financial help within Universal Credit.

Currently people who have health issues and are also carers can claim both a carer premium and a work related activity premium on top of any income related benefits. Under Universal Credit they will only be able to receive one of these (whichever is higher). This is a potential loss of £28.15 per week.

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Financial Capability Impact of the Changes on Tenants Change to Direct Payments Many tenants are worried about the consequences of becoming responsible for rent:

The main concern centres on the fear of being tempted/ pushed into overspending on other items, leaving too little money to pay the rent.

Tenants are concerned about falling into arrears with consequences for their ability to sustain their tenancy.

Managing bills can be a stressful experience for many tenants. Making people more responsible for keeping a roof above their heads may increase this stress.

Monthly Payment in Arrears The shift to monthly payment may cause problems for many tenants 4:

Significant proportions of tenants budget on a weekly or fortnightly basis, often in line with the frequency of their benefit payment.

The payment of benefits on a fortnightly or weekly basis is seen as a protection against being without money for any length of time, as an effective way to ration expenditure and avoid temptation to spend too much at once.

The making of a large one off payment at the start of the month may present a psychological challenge to effective budget management.

Even tenants in work may not be used to managing money monthly, only 51% of those earning less than £10,000 per annum are paid monthly.

Although many people who will claim Universal Credit are effective budgeters, budgets can be thrown into disarray by unexpected costs, or simply be too restricted to make effective management possible.

Tenants moving from a job paid weekly to a monthly Universal Credit payment will be dependent on benefit advances in the early stages of their claim.

There is likely to be an increase in the number of tenants who regularly run out of money and do not have the money to afford household basics, including food, baby supplies, and ‘key meter’/ payment card top ups for utilities.

This may result in an increased usage of informal borrowing from friends or family, or from expensive non mainstream sources.

The shift to monthly assessment means that: o Claimants experiencing a reduction in entitlement during a month will lose that

entitlement for the whole month. o Predicting future income based on entitlement for the coming month may become

difficult, adding to the budgeting challenges facing claimants. Single Payment to Single Household Member

The consequences of mistakes being made in the payment of benefits are raised when the majority of payments received by a household are rolled into one.

This may be of particular concern in the early stages of the introduction of Universal Credit when ‘teething troubles’ are likely.

Many tenants ‘hypothecate’ particular benefits, i.e. set them aside for use on particular expenditure items. It is not clear that the calculation of Universal Credit presented to claimants will explicitly state the elements from which the overall payment is made up, potentially removing from some a budgeting tool on which they rely.

Organisations working with people affected by domestic violence have expressed concern that this change increases the opportunity for financial abuse.

Expenditure on children is lower in families where benefits are paid to male parents.

4 Keohane N Shorthouse R ‘Sink or Swim - The Impact of Universal Credit’ Social Market Foundation 2012

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The Benefit Cap Prior to the introduction of Universal Credit the cap will apply to the combined income a household receives from Job Seeker’s Allowance, Employment and Support Allowance, Housing Benefit, Child Benefit, Child Tax Credit and Carer’s Allowance. Once households have been transferred to Universal Credit, it will apply to their combined income from Universal Credit and other benefits including Child Benefit and Carer’s Allowance. Households will be exempt from the cap if a member of the claimant household is claiming; Disability Living Allowance; Personal Independence Payment; Attendance Allowance; Working Tax Credit; Employment and Support Allowance(with the support component) or War widows/widowers pension. There will also be a nine month grace period for those who have been in work for the previous 12 months and lose their job through ‘no fault of their own’. The benefit cap has been set at the current average (median) net earnings for a working household; £500 per week (£26,000 per annum) for lone parents and couples with or without children, and £350 per week (£18,200 per annum) for single people without children. The level at which the cap comes in can be changed through a statutory instrument. This means it can be adjusted whenever the Government believes it is appropriate. It is estimated that 67,000 households in the UK are affected by the cap, those affected losing an average £83 weekly5. Many more people are affected by the benefit cap in the private than in the social rented sector, but there are a small number of larger social rented households in Scotland living in large social rented properties who are affected. The number of social rented tenants affected will grow if the cap does not increase in line with rents.

Case Study: Dunedin Canmore Housing Association

Dunedin Canmore Housing Association has around 5,500 tenants, mostly in Edinburgh, but also elsewhere in the Lothians and Fife. The association hosted one of the DWP’s six Direct Payment Demonstration Projects, the only one in Scotland, taking part in the project in an effort to get ahead of the game developing its response to Universal Credit. Dunedin Canmore have found the collection of rent from people not used to paying themselves to be a big challenge. Making contact with tenants in the project and working with them to ensure the payment of rent has been a very resource intensive exercise. The focus of the organisation’s work in relation to the Demonstration Project has been on providing tenants with budgeting advice and support. Unexpectedly, around half of those identified as needing the budgeting support offered by the Money Advice Service refused it. There was not as much demand for support opening new bank accounts for tenants as had been expected, the vast majority of tenants involved in the pilot had existing accounts. The association’s welfare rights service, made up of four welfare rights officers, has backed up the offer of budgeting support by receiving referrals. The service has also continued to deal with a heavy burden of existing work, for example with ESA appeals, and played a critical role in providing training to staff, and contributing to the development of the organisation’s strategy. Amongst the other financial inclusion work that Dunedin Canmore is involved in:

Housing officers have been issued with referral guidelines to support their identification and referral to support of tenants whose circumstances have changed.

CHAI, a local voluntary organisation, is commissioned to deliver tenant sustainment support, including a substantial financial inclusion element.

5 http://www.dwp.gov.uk/docs/household-benefit-cap-wr2011-ia.pdf

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Universal Credit - Key Points

Universal Credit is the flagship of the Government’s welfare reforms, replacing most means tested benefits and all tax credits for people of working age.

It aims to create a simpler system, with improved work incentives and eased transitions back into work.

Other gains may include a reduction in levels of underclaiming.

The benefit cap, which will be part of Universal Credit, will, initially at least, only affect very small numbers of social rented households with large numbers of children.

The implementation of Universal Credit has now begun, although at a slower pace than planned, and with a timetable that may be subject to further slippage.

Claimants will be subject to a claimant commitment, and a stricter, less flexible sanctions regime.

Universal Credit entitlement will be calculated monthly, based on communication between the DWP and HMRC.

Social rented tenants claiming Universal Credit will be moved from managed payments to their landlords under the current system, to direct payment to them of the housing related element to Universal Credit. Exceptions will be triggered when tenants are vulnerable or hit certain levels of arrears.

The Direct Payment Demonstration Projects have highlighted a number of challenges managing this new situation, the greater risk of rent arrears created, and an increased workload for social landlords.

The change to monthly payment and payment to a single member of the household are, like the move to direct payment of benefits, intended to change the financial behaviour of claimants. As such they will also create considerable challenges to the financial capability of tenants, although vulnerable people may again be exempted.

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1.1.2 Transition II: The Replacement of Disability Living Allowance with Personal Independence Payment The focus on preparing for the arrival of Universal Credit and dealing with consequences of the Bedroom Tax may have meant less attention being paid by social landlords to another aspect of welfare reform with real significance for many tenants. In the Welfare Reform Act 2012, the Government set out details of the creation of a new benefit, called Personal Independence Payment (PIP) to replace Disability Living Allowance (DLA) for eligible working age people aged 16 to 64. The Government’s intention was that Personal Independence Payment: ‘will focus support on those individuals of working age who experience the greatest challenges to remaining independent and leading full, active and independent lives’. Timescale for Introduction

From April 2013: New claims were for PIP not DLA in trial areas in the North West and North East of England.

From June 2013: All new claims are now for PIP, with no new claims for DLA other than for people renewing DLA claims which were due to expire before February 2014.

From October 2013: The following DLA claimants were to be invited to claim PIP (implementation has been delayed due to capacity issues):

o Children turning 16. o Those reporting changes of circumstances which will affect their rates of payment. o Those DLA claimants with fixed term awards expiring from Feb 2014. o Those self selecting.

Between October 2015 and December 2017, after an evaluation of the first stage of PIP implementation:

o Remaining DLA claimants will be invited to make a claim for PIP and will go through the reassessment process.

Basic Features Like DLA, PIP:

Has two components, a daily living component (which has similarities to the current care component) and a mobility component.

Is available to people who are either in or out of work and will not be means tested. Unlike DLA, there are no life awards. The DWP expect most people to be awarded PIP for 2 years with the maximum award likely to be 10 years. At the end of this period, claimants will have to go through an additional daily living and/or mobility activities test. The daily living component is paid at:

Standard rate – if you have a limited ability to carry out daily living activities.

Enhanced rate – if you have a severely limited ability to carry out daily living activities. The mobility component is paid at:

Standard rate - if you have limited mobility.

Enhanced rate - if you have severely limited mobility.

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Eligibility for PIP PIP claimants must:

Be aged 16-64 (People will not be able to claim PIP once they are 65 years old but will be able to stay on PIP if they claimed/received it before they reached the age of 65.)

Satisfy the daily living and/or mobility activities test for 3 months prior to claiming and be likely to continue to satisfy this test for a period of at least 9 months after claiming (this 9 month period is called the prospective test).

PIP Assessment Access to PIP is through the daily living and/or mobility activities test, an assessment carried out by an independent health professional. Claimants are likely to be asked to attend a face-to-face consultation. In order to qualify for the respective components of PIP, claimants have to score a certain number of points on tests of their ability to carry out activities relating to daily life and mobility. The 11 daily living tasks looked at include tasks such as preparing food and drink, managing therapy and monitoring, managing toilet needs or incontinence, communicating, engaging socially, planning and following a journey (used in the test for the mobility component). Relationship between PIP and other Benefits PIP will act as a passport to other benefits /support:

People can qualify for help under the Motability Scheme if they are receiving the highest mobility component of PIP.

Both levels of the daily living components of PIP act as a passport to Carer’s Allowance.

Tenants who are claiming the Daily Living Component of PIP are exempt from non dependent deductions from Housing Benefit and the new Council Tax Support Scheme.

People claiming the Daily Living Component of PIP at standard or enhanced rates are able to claim a ‘National Entitlement Card’ - a free bus pass, and a companion card for someone to travel free with them.

Impact of the Changes Impact in Numbers

There are currently 203,400 people of working age claiming Disability Living Allowance in Scotland, about 10.9% of the UK total of 1.859m6.

Based on that percentage and estimates from the Department of Work and Pensions, o Around 192,000 people in Scotland will go through the assessment7. o Around 207,000 new applications will be made in Scotland over the period of

transition from DLA to PIP. The transition will affect 51,000 people with mental health problems, 44,000 people with musculo skeletal problems, 24,000 people with learning disabilities, 23,000 people with neurological conditions and 17,000 people with cardio vascular disease. Based on DWP estimates, of those current DLA claimants in Scotland will go through the assessment process:

55,750 will see their award increase.

55,750 will see their award decrease.

29,500 will see their award stay the same.

49,240 will get no support under the new system.

6 All claimant figures in this subsection from ‘https://www.gov.uk/government/organisations/department-for-work-

pensions/series/dwp-statistics-tabulation-tool 7 All estimates on this and the next page based on ‘Personal Independence Reassessment and Impacts’ DWP Dec 13

th

2012

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The Human Impact Claimants currently use Disability Living Allowance and Personal Independence Payment in a variety of ways including to:

Purchase personal care, or pay for a variety of less intensive support/ meet expenses incurred by informal carers in delivering care.

Enable claimants to travel, including paying for taxis or accompaniment by a carer.

Pay for equipment or other additional costs experienced as a result of disability, for example increased laundry bills due to continence issues, or increased heating bills due to lack of mobility.

Cover work related costs relating to having a disability. Some claimants will also use DLA to cover general household expenditure or as a guaranteed source of income if their broader income is less stable. The loss of DLA, and its associated/ passported benefits, threatens to create problems for disabled people who fear:

Struggling to manage financially.

Being more isolated, and less able to engage in social activities.

Being less able to engage in any activities outside the home.

Being less able to maintain themselves in employment. Many are concerned that these constraints on their lives will have a severely negative impact on their health and wellbeing, some that they will be forced to seek extra support, others that they may no longer be able to live independently, or that they will be forced to give up work.

PIP Key Points

The process has now started of Personal Independence Payment replacing Disability Living Allowance for new applicants of working age, although the timetable for people moving from DLA to PIP is subject to slippage.

Access to PIP will involve the assessment, mainly face to face, of people’s ability to carry out a range of daily living and mobility tasks.

PIP, like DLA, will be a passport to other benefits and entitlements.

Unlike under DLA, there will be no more lifetime awards, meaning all claimants will have their cases reconsidered at some point.

PIP will be an important benefit for tenants with mental health problems, musculo skeletal problems, learning disabilities, neurological and cardio vascular conditions.

The assessment process may be very stressful for vulnerable tenants who may have been reliant on DLA for a long time.

Tenants may fear the transition may mean a loss of ability to pay for support/ care, a loss of independence, a loss of ability to engage in social activities or maintain employment, or simply a loss of essential household income in the context of higher outgoings because of ill health/ disability.

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1.1.3 Transition III: Incapacity Benefit to Employment and Support Allowance In 2008 Employment and Support Allowance (ESA) was introduced to replace Incapacity Benefit (IB) as the benefit for people unable to work due to ill health. The aim of the reform was to encourage more people who were viewed as being unable to work because of a disability/ health problem to get or seek work, and to offer more support to those able to work/ able to begin to prepare for a job. Timescale for Transition The new benefit has been brought in on the following timetable:

Since October 2008 all new claimants have claimed ESA rather than Incapacity Benefit.

In April 2011 the migration began of all existing claimants in receipt of IB and Severe Disablement Allowance (SDA) to the new benefit.

The migration process is due to conclude in March 2014, at which time Incapacity Benefit and Severe Disablement Allowance will effectively be abolished. The Work Capability Assessment (WCA) To access ESA, new claimants and those migrating from IB, are assessed for their fitness to work. This requires them to complete an initial questionnaire, and in most cases will involve a face to face medical with a health professional employed by ATOS, the company contracted to deliver the assessments on behalf of the DWP. The ‘Work Capability Assessment’ results in claimants being assigned to one of three groups:

The ‘Fit for Work’ Group. People in this group claim Job Seeker’s Allowance rather than Employment Support Allowance, and are required to look for work.

The ‘Work Related Activity Group’. People in this group receive ESA. They are considered to have limited ability to work at present, but to be capable of preparing for a return to work. People in this group are likely to be re-assessed every 6 months – 12 months.

Placed in the ‘Support Group’. People in this group receive ESA but are considered as having limited capability for work related activity and for work.

Those placed in the Work Related Activity Group or Support Group may be recalled for reassessment at any time after an initial assessment. Time Limiting Employment and Support Allowance ESA is currently paid in both income-based and contribution-based forms. In April 2012 the rules changed for claimants of contribution-based ESA (and therefore also claimants on contribution-based IB who are migrated over to ESA). Prior to April 2012 claimants of contribution-based ESA continued to be entitled to the benefit for the duration of the period that they satisfied the medical conditions. Since April 2012 claimants in the Work Related Activity Group have only been entitled to contribution-based ESA for a maximum of 365 days. After that point they must claim income-based ESA, to qualify for which their household income must be below a certain threshold. This will impact on the income of households containing an ESA claimants in the Work Related Activity Group, who has a partner in employment.

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Impact of the Reform Impact of the Reform in Numbers As of February 2013, there were 177,650 people in Scotland claiming Employment and Support Allowance and 73,070 still claiming Incapacity Benefit8. Figures on the main reasons for claiming give a sense of which tenants may depend on ESA:

85,900 ESA claimants are claiming because of mental health problems.

22,900 because of musculo skeletal problems.

11,220 because of circulatory/ respiratory problems.

10,700 because of neurological conditions.

9,100 because they have experienced injury or accident. Human Impact Much of the discussion about the human impact of this transition centres on issues with the outcomes, format and delivery of the Work Capability Assessment. Those will be picked up in more detail in section 1.2.1 below. The consequences of those difficulties can mean considerable stress for those going through what is often experienced as a frustrating and frightening process, and anger for those subject to a decision they consider unfair, stigmatising and reflective of official disbelief about their application. People may also find themselves subject to work related requirements that they are not capable of fulfilling. A further financial consequence for individuals of the outcome assessment process must be noted; someone found fit for work receives less benefit than someone claiming IB or ESA. Change to the Appeal Process The DWP has changed the appeal process for all benefits for those dissatisfied with a decision, for the stated purpose of resolving more cases before the tribunal stage. A new, mandatory reconsideration phase has been introduced in the appeal process, with claimants now having to request that the DWP reconsider a decision before they submit a formal appeal. Amongst the largest groups of people affected will be those unhappy with the decision they received under the Work Capability Assessment. Whilst a decision is under reconsideration, claimants must sign on for Job Seekers Allowance, with all the work related requirements that involves, if they wish to receive work related benefits during this time. There are concerns that:

This may reduce the willingness of claimants to appeal despite having a good case.

Given the pressures on the system, the reconsideration process may be slow.

Some claimants will not be able to fulfil the work related requirements for JSA, and may be trapped between being judged too fit for work, and not fit enough for JSA.

Claims for Housing Benefit will be impacted unless action is taken by the claimant.

8 All claimant figures in this subsection from ‘https://www.gov.uk/government/organisations/department-for-work-

pensions/series/dwp-statistics-tabulation-tool

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Key Points - ESA Since 2008 people unable to work because of ill health have claimed Employment and

Support Allowance rather than Incapacity Benefit.

The transition of existing IB claimants to ESA is due to conclude in March 2014.

People applying for ESA go through a Work Capability Assessment, WCA, which decides whether they are fit for work (and therefore entitled to Job Seekers Allowance), capable of undertaking activity to prepare for work, entitling them to ESA and placing them in the ‘Work Related Activity Group, WRAG’, or if they are not capable of preparing for work, entitling them to ESA and placing them in the ‘Support Group’.

Changes to the appeal process, introducing a reconsideration phase before an appeal can be launched have left people unhappy with a WCA, in a particularly vulnerable position.

The assessment and appeal processes are stressful for claimants, who will be concerned about the possibility of losing income or being required to undertake work related activity when they do not consider themselves fit to do so.

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1.1.4 ‘Salami Slicing’ This next subsection describes a number of changes to the benefit system which are ‘salami slicing’ the incomes of tenants, each taking small slices which may add up to a substantial amount where tenants are affected by more than one change. These changes have been brought in advance of Universal Credit, so that any statistics quoted above or in the press on the financial impact of Universal Credit have to be understood in the context of what may be already substantial financial losses.

‘Salami Slicing’ I: The Under-occupation Penalty/ ‘Bedroom Tax’

The Welfare Reform Act 2012 introduced the ‘Under-occupation Penalty’ or Bedroom Tax, which came into force in April 2013. The central principle of this aspect of the reform is that any working-age household deemed to be ‘under-occupying ‘ their home based on the Government’s size criteria now receives Housing Benefit based on the size of property they ‘need’ rather than the property they occupy. Size Criteria The size criteria in the social rented sector restrict Housing Benefit to allow for one bedroom for each person or couple living as part of the household, with the following exceptions:

Children under 16 of the same gender will be expected to share.

Children under 10 will be expected to share regardless of gender.

Disabled tenants or partners who need a non resident overnight carer will be allowed an extra room.

Current case law also suggests that two disabled children will be entitled to their own rooms.

For certain households, including where tenants are foster carers, or where tenants have adult children in the armed forces.

Any household deemed to have more bedrooms than they require, as defined by the criteria, loses a proportion of their Housing Benefit. The deduction is a fixed percentage of the Housing Benefit eligible rent. This is set initially at 14% for one extra bedroom and at 25% for two or more extra bedrooms.

Impact of Bedroom Tax Impact in Figures Figures from the Scottish Government9 suggest that:

82,500 households are affected by the Bedroom Tax.

The average cost per week to those households is £11.

68,500 households are under-occupying by one bedroom, 14,000 by two.

47,500 of those households are in the local authority sector, 35,000 are in the housing association sector.

In terms of the characteristics of the households affected:

63,500 of those households contain an adult with a Disability Discrimination Act recognised disability.

15,500 of those households are households with children. The former figure is particularly significant given the extent to which disabled people are being impacted on by other elements of welfare reform.

9 ‘Updated Evidence on the Number of Households affected by the Housing Benefit Under-occupation Penalty’, Scottish

Government June 2013.

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The estimated cost of lost Housing Benefit payments to Scotland if households take no mitigating action is estimated at around £50m. Human Impact Tenants affected:

Will have to fund the shortfall in their rent from their existing income. o If they cannot increase their income sufficiently by finding employment/ increasing

their wages from employment 10 o If they cannot find alternative accommodation;

Are more likely to find themselves in arrears and less likely to be able to sustain their tenancy.

Are at increased risk of debt and poverty, and the consequences of such problems for health and well being.

May face dislocating and stressful change if they are forced to move from long standing homes.

May become newly responsible for paying part of their rent, with the financial capability/ budgeting challenges that brings with it.

Certain groups of tenants are at risk of particularly negative consequences:

Disabled people if forced to move from properties have been adapted to enable them to live independently.

Single parents without custody (usually fathers) may find their ability to maintain current levels of contact with their children is impaired.

Discretionary Housing Payment If their Housing Benefit does not cover all the rent that they have to pay, and they are finding it difficult to pay the rent, tenants may be able to claim a Discretionary Housing Payment, a DHP. DHPs are designed to support tenants facing specific challenges in meeting rent, including specific costs relating to being disabled, and tenants whose Housing Benefit has been reduced, now including those affected by the Bedroom Tax. DHPs are administered by local authorities. Application involves submission by the claimant of information about household income and expenditure. The discretionary nature of the payments means that tenants whose application has been rejected cannot appeal, but they can ask for a reconsideration. Both the UK Government and the Scottish Government are using the DHP system to mitigate the impact of the Bedroom Tax.

Additional allocations to Scotland by the DWP in Summer 2013 took the budget for Scotland to £15.5m.

The £20m for mitigation announced by the Scottish Government in September 2013, and the further £20m announced in October 2013 for 2014/15 is to be routed to tenants through the DHP system.

The amount available for DHPs in Scotland remains short of what would be required to prevent any Scottish tenant from being impacted by the Bedroom Tax. Pressure on the DHP budget in each LA area remains intense.

‘Salami Slicing’ II: Reductions in Benefit Uprating

Benefits are uprated annually to reflect the rate of inflation, thus preserving their value to the recipient. By restricting the uprating of benefits, the real value of benefits is eroded over time, and the Government saves money in real terms.

10

(It should be remembered that the tapered withdrawal of Housing Benefit for people in work will mean that tenants have to earn a considerable amount extra before covering their Bedroom Tax loss)

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The first change was announced in the Budget of 2010, with benefits to be uprated in line with the generally lower Consumer Price Index measure of inflation, rather than the previously used (and generally higher) RPI and Rossi index measures. This was designed to save £10.6bn on benefit payments by 2015/16. In the Autumn Budget Statement of 2012, further changes reduced the rate at which benefits were to be uprated:

From April 2013, the following benefits are to be up rated by just 1% for three years; Jobseeker’s Allowance; Employment and Support Allowance; Income Support; applicable amounts for Local Housing Allowance; Maternity Allowance; Statutory Sick Pay; Statutory Maternity Pay; Statutory Paternity Pay; and Statutory Adoption Pay.

This excludes the disability, carers’ and pensioners’ premium in these benefits and the support component in Employment and Support Allowance, which will continue to be uprated in line with inflation.

Child Tax Credit and Working Tax Credit (excluding disability elements) will also be uprated by 1 per cent for three years from April 2013.

Child Benefit was frozen in April 2013, as set out in the June Budget 2010, but will be uprated by 1 per cent for two years from April 2014.

Earnings disregards for Universal Credit will be increased by 1 per cent in April 2014 and April 2015.

The Impact of the Changes Taken together with stagnant and declining wages these changes mean that by 2017/18 the average low to middle income household will have the same income in real terms as in 1997/9811. Families with children with children will be particularly at risk because the majority of the savings will come from households with children, and the real cost of raising a child continues to increase faster than inflation12.

‘Salami Slicing III’: Non Dependent Deductions

A non-dependent is someone who normally lives with the Housing Benefit claimant, such as an adult son, daughter, relative or friend. A weekly fixed deduction based on the non-dependent’s income is made from the claimant’s Housing Benefit entitlement, unless the non dependent belongs to one of a number of specific groups. Non-dependent deductions had been frozen since 1999. However, in advance of the main Housing Benefit and Welfare Reform Bills, the Government introduced secondary legislation to up-rate non dependent deductions (NDDs) with the aim of gradually bringing them back up to the level they would have reached if the freeze had not been applied in 1999. Non-dependent deductions from weekly Housing Benefit were increased by 19% from 2012/2013 to 2013/14. Deduction Rates The weekly deduction rates for 2013/2014 are set out in the table below. These will be increased year on year. Non Dependent Status Non Dependent Deduction Rates for 2013/14

Non-working non-dependents (with some exceptions) £13.60

Working non dependents

- Gross income less than £124.00 £13.60

- Gross income between £124.00 and £183.00 £31.25

- Gross income between £183.00 and £238.00 £42.90

11

Whittaker M ‘Squeezed Britain 2013’ Resolution Foundation 2013. 12

Hirsch A, Sutton L, Beckhilling J, ‘The Cost of a Child in the 21st Century’ CPAG 2012

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- Gross income between £238.00 and £316.00 £70.20

- Gross income between £316.00 and £394.00 £79.95

- Gross income not less than £394.00 £87.75

Non Dependent Deductions under Universal Credit Under Universal Credit the Government will make further changes to the way non-dependant deductions are calculated13. They have indicated there will be one standard rate of deduction applied to non-dependants unless they fall under one of the exempt categories. These categories have been changed from the current situation, and relate to whether non dependents are under 21, claiming Pension Credit, or in receipt of certain disability/ carer related benefits, or whether the tenant and their partner is blind or in receipt of certain levels of disability related benefits.

Salami Slice IV: Changes to Tax Credits

The Emergency Budget in 2011 introduced a number of significant changes to Tax Credits that came into effect on 6th April 2012. The key changes are as follows:

A 50% increase in the number of hours couples with children have to work. Before April 2012 couples responsible for children needed to have at least one partner working at least 16 hours a week to get Working Tax Credit. Since April 2012 a couple with children have needed to have joint working hours of at least 24 a week to qualify, with at least one of the couple working 16 hours.

A 37% reduction in the income limit for Child Tax Credit. Before April 2012 claimants could usually get some Child Tax Credit as long as their income was not over the limit of £41,300. From 2012 this limit has been reduced to £26,000 for people with one child, £32,000 for people with two children (There are some exemptions which depend on individual circumstances.)

Restrictions in changes of income. Before April 2012, if a claimant’s annual income for the current tax year went down they could often get extra tax credits for the current year. From April 2012 if a claimant’s income goes down by £2,500 or less their payments will not change for the current tax year.

Reduction in backdating. Before April 2012, the Tax Credit Office could pay tax credits for up to three months before the date of claim. From April 2012 this period reduced to one month.

Changes for the over 50s. The '50-plus element' has been abolished from April 2012. This was an additional payment of up to £39 per week of Tax Credits to people who were 50 or over on the date they started work and had been in receipt of one of a number of identified benefits for the previous 6 months.

Key Points - Salami Slicing

Away from the three main transitions discussed above, a number of changes are being made to the benefit system which are taking small slices out of tenants’ incomes. Collectively they may add up to substantial reductions in the income of people already experiencing poverty.

The Bedroom Tax is leaving many tenants facing unpalatable or even impossible financial and housing choices.

Disabled tenants are disproportionately affected by the Bedroom Tax.

Mitigation of the impact through the use of Discretionary Housing Payments is only a partial solution.

The reduction in the annual uprating of tax credits and many means tested benefits to be applied over the next few years will result in the year on year erosion of tenants’ real incomes.

13

Universal Credit Regulations (draft) Schedule 1 Part 3 regulations 15- 17, Department of Work and Pensions 2012

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The ongoing increase in Non Dependent Deductions will particularly hit families with adult children living in the house. Further changes will be occurring under Universal Credit.

Changes to tax credits have hit families where adults work part time and cannot increase their hours, slightly better off families, and families headed by people over 50, often including grandparents with caring responsibilities for grandchildren.

1.1.5 Devolved Benefits The 2012 Welfare Reform Act abolished two key areas of the benefit system, the Social Fund and Council Tax Benefit, and devolved control over the design of their replacements to the Scottish Government, the Welsh Assembly Government, and to English local authorities. The budgets for replacement schemes still come from HM Treasury, though the Scottish and Welsh Governments have the power to supplement them.

Devolved Benefit I: Scottish Welfare Fund

The former Social Fund was made up of three elements administered by Job Centre Plus.

Community Care Grants.

Crisis Loans.

Budgeting Loans. The DWP retains responsibility for:

Making available Budgeting Loans to people claiming the Universal Credit legacy benefits until such time as the transition of claimants to Universal Credit is complete.

In the longer term, replacing Budgeting Loans for Universal Credit claimants with a new system of ‘budgeting advances’.

Replacing Crisis Loan Alignment Payments with a new national scheme of short term advances that it administers itself.

Through the creation of the Scottish Welfare Fund, the Scottish Government has discharged its responsibility for the design and delivery of local welfare assistance schemes replacing Crisis Loans and Community Care Grants New Arrangements The new Scottish Welfare Fund has two purposes, similar to the purposes of the former Crisis Loans and Community Care Grants respectively:

To provide a safety net in times of disaster or emergency when there is an immediate threat to a household’s health and safety.

Enable independent living/ enable continued independent living preventing the need for institutional care.

The fund also has two elements:

Crisis grants, awardable to meet expenses that have arisen as a result of an emergency or disaster in order to avoid serious damage or serious risk to the health or safety of the applicant or their family.

Community Care Grants awarded in support of independent living to help: o People establish themselves in the community following a period of care where

circumstances indicate that there is an identifiable risk of the person not being able to live independently without this help.

o People remain in the community rather than going into care where circumstances indicate that there is an identifiable risk of the person not being able to live independently without this help.

o People set up home in the community, as part of a planned resettlement programme, following a period of living an unsettled way of life.

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o Families facing exceptional pressures and who lack the resources to meet irregular costs and to provide a safe and secure environment for their children.

o People to care for a prisoner or young offender on release on temporary licence.

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Entitlement

Both elements of the fund will only be open to applicants over the age of 16.

Applicants will have to be on income related benefits to claim, with exceptions where the severity of a situation demands.

The benefits will not be payable to cover sanctions associated with Universal Credit (or Job Seekers Allowance/ Employment and Support Allowance).

Claimants may only access 3 payments within a 12 month period. Applications to the fund will be declined if the claimant has savings above £700 if they are of working age, or £1,200 if the claimant is a pensioners. Target Groups The benefits are designed to support:

Disabled people.

People with mental health problems.

Unemployed people.

Older people.

Care leavers.

Homeless people.

Ex offenders.

Carers. Assessment and Review Assessment will be carried out by decision makers based within local authorities. Applicants will be assessed in terms of the level of their need, and their vulnerability as an individual, and assigned to one of three priority categories, high, medium and low priority. The Fund is discretionary, that is claimants do not have a legal right to receive support from it, but decision makers must follow the Scottish Government Guidance in reaching their decision on an application, and claimants can request a review of decisions. Payment Payments may be made either in cash, or in kind, for example through the direct provision of items requested, or in the form of vouchers or packages of goods. Links to Other Services Guidance for the Fund is clear that claimants, whether successful or not, should be referred to other advice and advocacy organisations for additional support and advice including income maximisation/ benefits advice, money advice including budgeting, housing and employment advice and support.

Devolved Benefit II: Council Tax Support Scheme

The devolution of responsibility for the design and delivery of the replacement for Council Tax Benefit to Scotland took place in the context of:

A 10% cut in the budget provided from central government for the purpose.

A requirement to maintain current levels of support for older people. The Scottish Government’s Council Tax Support Scheme is designed and currently funded to ensure that all those previously in receipt of Council Tax Benefit will receive an equivalent reduction in their Council Tax liability, and that new applicants will receive the same support as they would have under the previous system. Calculation of Council Tax Relief entitlement is based around the concept of the ‘applicable amount’, the amount of money that a claimant requires to live on.

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Where a claimant has an income lower than the applicable amount, they receive 100% relief on their council tax contribution.

Where a claimant receives more than the applicable amount, the amount of relief they receive is reduced by 20 pence in every pound received over that amount until the relief disappears.

People cannot claim Council Tax Relief if they have savings of over £16,000, and if non dependent adults are living in the household, deductions from the household’s entitlement are made to reflect the contribution that these non dependents should be making to the household’s Council Tax liability. New applications are made to local authorities, applicants previously on Council Tax Benefit were automatically transferred to the new benefit.

Key Points - Devolved Benefits

The Scottish Welfare Fund has replaced the Community Care Grant and Crisis Loan elements of the former Social Fund. The other elements of the former social fund are being retained and developed by the DWP.

The fund is being administered by local authorities.

The new fund has similar features to the elements is has replaced. It is designed to support people in crisis situations and to assist people to build an independent life

The fund is targeting people with mental health problems, disabled people, unemployed people, older people, care leavers, homeless people, ex offenders and carers.

The Council Tax Support Scheme has been designed to ensure that people who were entitled to Council Tax Benefit receive equivalent support under the new scheme.

New applications are made as now to local authorities, people previously on Council Tax Benefit have been automatically transferred to the new scheme.

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1.2 Understanding the Financial Problems Facing Tenants Introduction This section describes the range of interlinked financial exclusion and poverty problems that affect many social rented tenants. It focuses in turn on:

Problems in dealing with the benefit system.

Debt.

Financial capability.

Access to financial products.

Three critical aspects of poverty impacting on tenants; fuel poverty, food poverty and meeting the costs of setting up home.

Digital Inclusion.

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1.2.1 Problems Engaging with the Benefit System The UK’s benefit system is a highly complex mixture of universal provision, benefits targeted at those out of work or on low incomes, at those with children or caring responsibilities, at those affected by illness, disability, or particular life events, and grants and loans for specific purposes. The system as whole relies heavily on human assessment of, variously, the situations facing the health, and the conduct of applicants. It is dependent on the accuracy, consistency and appropriateness of the work of those involved in its administration, and on accurate information being provided by applicants and those supporting them. As a result, there are four key areas in which problems can arise for claimants or potential claimants. They may:

Under claim the entitlement they are due.

Be subject to administrative error.

Submit incorrect information in support of an application for benefit.

Be subject to an inaccurate or inappropriate assessment of their needs. Benefit Underclaiming Underclaiming is a problem throughout the benefit system; in relation to means tested benefits, benefits for disabled people/ people with health problems, and tax credits. Causes of Underclaiming Causes of underclaiming may include14 15:

Simple lack of knowledge about entitlement. Given that welfare rights officers themselves face considerable challenges in ensuring that they have comprehensive and up to date knowledge of the system, those meant to be the system’s beneficiaries will inevitably struggle to find their way around it.

Changes in circumstances. Change is a constant in people’s lives. People move in and out of work, up and down the earnings scale, become older, become more or less frail, ill or disabled, have children or see children reach adulthood, move in and out of relationships or see partners die, take on caring responsibilities etc. Entitlement to benefit, (or removal of entitlement to benefit) can be triggered by a whole range of changes in life circumstances, and potential beneficiaries can simply be unaware of this.

Literacy and numeracy issues. Many of the people most in need of benefits are those who struggle because of literacy and numeracy issues, and who are therefore not able to either fully understand written information or complete benefit application forms appropriately. Lack of digital literacy may become a further cause under of underclaiming under Universal Credit.

The emphasis placed on benefit claimants being proactive. Some potential claimants may be unwilling to make the effort to make a claim for a benefit they expect to receive for only a short time, or for a means tested benefit when the perceived financial gain is marginal in comparison to the effort required to claim. Others may struggle to provide information because of literacy and numeracy issues, or broader vulnerability such as mental health problems.

Previous negative experiences with the benefit system, including previous experience of making unsuccessful claims, can put people off applying.

Complexity of application process. Many of the forms that applicants must complete to access benefits are highly complex, and take a considerable time to fill in, requiring adequate literacy and numeracy, and persistence.

Stigma. There may be stigma attached to claiming some types of support from the Government, particularly in the context of media coverage and political debates which have become harsher in tone.

14

The Benefits of Welfare Rights Advice, A Review of the Literature, Wiggan J and Talbot C, National Association of Welfare Rights Officers, 2006. 15

Helping Older People Engage with Benefits and Services: An Evaluation of the Partnership Fund, Tennant R, Webster S, Coleman M, Maher J and O Connor W, DWP 2007.

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Older people are more vulnerable to underclaiming. Older people may be less likely to claim their due for a number of other reasons including:

o Fear of loss of independence if they admit to vulnerability. o Having a strong sense of self reliance, often associated with the belief that they are

‘getting by’, or the view that ‘they don’t wish to bother anyone. Levels of Underclaiming The table below sets out the levels of estimated underclaiming of three key benefits, the numbers of people underclaiming, and the amount of money being underclaimed every year in Scotland.

Benefit Take Up by Caseload

(Percentage of Entitled People

Claiming)

Take Up by Expenditure

(Percentage of Total Amount

Claimable that is claimed)

Number of People Underclaiming in

Scotland

Amount of Money Being Missed in

Scotland

Housing Benefit (Social Rented Tenants Only)

85-90%16

73-80% 42,000-67,00017

£81-£157m

Pension Credit 62-68% 73-80% 114,000-149,000 £166-£245m

Attendance Allowance

50-65%18

50-65% 72,000- 134,000 £254-£471m

System Error/ Claimant Error Staff within the benefit system at all levels, from those entering data to information management to decision makers, can and do make human errors:

Data on a written form may be incorrectly entered into the system.

Forms may be lost or misplaced.

Decision makers may not take account of all relevant information when reaching a decision.

Decision makers may not themselves be fully cognisant with relevant regulations. Benefit applicants may make a range of human errors, often connected to the range of issues identified as causes of underclaiming. They may:

Submit application forms that: o Are not complete, or miss critical information. o Lack necessary or helpful supporting evidence.

Particularly when applying for disability related benefits, understate the extent of the health/ impairment problems they face, sometimes for reasons of pride, on other occasions because they are unaware that the system is interested in their ‘typical day’, not their ‘best day’.

Welfare Rights Advisers will need to be aware of the increased risk of system error for both staff and claimants:

New rules, regulations and systems will be unfamiliar to administrative staff. In a context in which a key goal of reform is the saving of money, errors, particularly of judgement, seem more likely to be in favour of the system than the claimant.

Claimants used to previous application processes will find themselves in unfamiliar territory.

16

Take up rates on Housing Benefit and Pension Credit from ‘Income Related Benefits: Estimates of Take Up in 2009/10’ DWP 2012. 17

Based on Housing Benefit claimant statistics from https://stat-xplore.dwp.gov.uk/, claimant statistics for other benefits from https://www.gov.uk/government/organisations/department-for-work-pensions/series/dwp-statistics-tabulation-tool 18

Based on author’s analysis of Attendance Allowance claim statistics updating from estimate in Craig G and Greenslade M ‘First Findings from the Disability Follow Up to the Family Resources Survey’ DSS 1998

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Assessment Processes Both Employment and Support Allowance and Personal Independence Payment require claimants to go through processes which assess their fitness to engage in work, or prepare for work, and daily living and mobility tasks respectively. The Work Capability Assessment (WCA) has been the subject of intense criticism. Problems identified include192021:

A failure to take proper account of the: o Variability in people’s conditions, and conditions with an intermittent impact that

requires serious adjustments to enable work. o Impact of pain. o Impact of medication. o Difficulty involved for certain people in making a physical effort. o Impact of fatigue. o Effect of compounding conditions.

Lack of consideration of the social model of disability, with people with lower skills and education being passed fit for work despite the combination of this and their disability/ illness meaning that they are likely to greatly struggle in the labour market.

Inaccurate assumptions being made during the assessment process, inaccurate recording of findings, and unsophisticated tools being provided for the use of doctors carrying out the assessment.

Poor recognition of mental health problems, particularly those accompanying physical problems.

Unprofessional conduct by staff carrying out the assessment. As a result of these problems, people are at risk of having excessive requirements placed upon them to engage in work or work related activity, and/ or not receiving the financial support they are due. The level of inaccuracy in the WCA process is such that 40% of decisions are currently appealed, 34% of those successfully. Of successful appeals, about one third are granted without the submission of extra evidence22, however, those without advice and support in the conducting of an appeal are much less likely to succeed. Will PIP See the Same Problems as ESA? ATOS won the contract to deliver assessments for PIP in Scotland, though it has subcontracted the work to SALUS, an initiative of NHS Lanarkshire. There is concern is that the problems experienced with the WCA will be repeated with assessments for PIP. The SFHA and other organisations are monitoring the implementation of PIP and its impact on new and existing claimants.

19

The Role of Incapacity Benefit Reassessment in Helping Claimants into Employment. House of Commons Work and Pensions Committee 13

th July 2011

20 The Tipping Point. The Human and Economic Cost of Cutting Disabled People’s Support’ Hardest Hit Campaign 2012.

21 The Harrington Reviews of the WCA process are available at www.dwp.gov.uk/policy/welfare-reform/employment-and-

support/wca-independent-review. 22 ‘Employment and Support Allowance: Outcomes of Work Capability Assessments, Great Britain. Quarterly Official Statistics Bulletin’ DWP, July 2013.

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Key Points - Benefit Problems

The benefit system is complex and is designed and administered by fallible human beings.

People may underclaim their benefit entitlement for a number of reasons including; lack of knowledge, in particular about changes to circumstances; literacy and numeracy; the need to take positive action to claim benefits; previous negative experience of the system; complexity of application forms; and stigma.

Older people are particularly likely to underclaim their full entitlement.

The system is subject to error, both from those who administer it, and from claimants submitting claims. All other things being equal, the likelihood of such errors increases in the short term at least in a new system.

There are currently particular problems with Employment and Support Allowance, with around 40% of Work Capability Assessment decisions subject to appeal, and a third of those appeals being decided in favour of the appellant.

There are concerns that similar problems may be replicated in the assessments for PIP.

37

1.2.2 Debt This section sets out:

An understanding of problem debt.

The levels of different types of debt affecting social rented tenants in Scotland.

The triggers for debt problems amongst tenants. Problem Debt Not all debt is problem debt. Taking on debt is an accepted way of managing payment for goods and services that cannot be paid for immediately. Debt becomes problem debt when people:

Do not feel in control of that debt, or feel constantly worried about their ability to repay it.

Are not clear about how much they have to repay, or do not understand why their repayments are set at the level they are.

Do not have a realistic plan for repaying what they owe.

Could have got a better deal in terms of cost, terms and conditions on their loan.

Find that they are unable, or struggle, to meet household bills, or make essential purchases as a result of the level of repayments they face.

Find themselves borrowing further money to pay for essential items. Debts are also problematic (and indicative of issues around financial capability) when people:

Are missing out on goods and services they want more.

Got into debt for an impulse purchase, for something that wasn’t value for money

Cannot remember why they borrowed.

Wish they had saved up to make their purchase, or paid cash. People are also considered to be in problem debt if they have fallen into arrears on one or more of a range of priority household bills, including rent, utilities, Council Tax and TV licence payment. How Tenants Get Into Debt and Who is Vulnerable to Debt Tenants may get into debt for a variety of reasons:

Lenders may lend irresponsibly to people who are unlikely to have the ability to repay what they owe.

They may have poor financial capability, and engage in irresponsible borrowing, without thinking through whether they are able to repay their loan, or at worst, being aware of potential repayment difficulties, and going ahead anyway.

They may face a poor range of credit options, with only high cost credit available to them.

They may have low levels of ‘financial resilience’, the ability to withstand financial shocks, or face challenges to an extent that might overwhelm most households.

Changes in circumstances may disrupt income and make previously affordable loans or bills unaffordable. Such changes may include illness, unemployment, relationship breakdown.

They may face unexpected essential household expenditures, for example the breaking down of a car required for employment.

For some tenants, the losses experienced as a result of the welfare reforms discussed in section 2 may push them into debt.

Particular groups of tenants are more vulnerable to being in debt:

People with mental or physical health problems (there are two way relationships in operation here).

Single parents.

People in intermittent employment.

38

Social rented tenants as a whole are simply less likely to have the buffers that protect them against the negative consequences for managing their budgets of particular life events. The table below sets out the self identified reasons for falling into debt by people in debt who are from the two socio economic groups who make up most of social landlords’ tenant population23. Primary Self Reported Reason

for Being in Debt ‘Benefit Reliant’ Households ‘Low to Middle Income’

Households

Changes in Income/ Spending 64% 53%

Reduced Income 14% 27%

Unemployment/ redundancy 46% 19%

Changes in Circumstances 20% 27%

Separation/ Divorce 6% 11%

Injury/ illness 11% 8%

Budgeting issues 12% 20%

Overcommitted on credit 5% 9%

Lack of budgeting 3% 5%

Irregular income 2% 3%

Used credit for living expenses 2% 3%

Extent of Debt Amongst Tenants Over half of all UK households (52%) are now struggling to keep up with household bills and credit card repayments, an increase since 2006, when around a third were in this position24. Those figures are very likely to be higher amongst social rented tenants. The pressure on tenants can be seen in the levels of housing related arrears from the groups served by social landlords25:

Amongst households from low to middle income households who are social renting, 17% are behind on their rent to some extent.

Amongst households who are benefit reliant, 18% of social renters are in rent arrears. Rent arrears are often only the tip of the iceberg of the debts owed by tenants in difficulties, total debts for social rented tenants average between 3.6 and 5.7 times levels of arrears26. The table on the next page sets out the proportion of people from the groups most likely to be social rented tenants who are in particular types of debt or arrears, over and above any rent arrears they may have. Expenditure Type Proportion of Benefit Reliant

Families Behind on Bills Proportion of Low to Middle

Income Families Behind on Bills

Council Tax Bills 8.1% 5.1%

Gas bill 10.6% 4.1%

Electricity bill 11.2% 4.1%

Water rates 13.3% 3.6%

Telephone Bill 6.0% 2.0%

Other HP Payments 3.3% 1.1%

TV/ Video Rental or HP 3.0% 0.5%

Other fuel bills 0.6% 0.2%

Insurance Policies 0.5% 0.3%

23

Whittaker M ‘Squeezed Britain the Annual Audit of Low to Middle Income Households’ Resolution Foundation 2012 24

‘The Financial Capability of the UK’ The Money Advice Service, 2013 25

Whittaker M ibid. 26

Evans G, McAteer M, ‘Does Debt Advice Pay?’ Hyde Group and Friends Provident Association, 2011.

39

Key Points- Debt

Not all debt is problem debt, but any debt can become a problem debt.

Key signs of problem debt include arrears on priority household bills, borrowing to pay for essentials, missing debt repayments, and facing such high levels of repayments that household essentials are not affordable.

Debt can result from a variety of problems; lenders’ behaviour; poor financial capability from borrowers who overstretch budgets; the high cost of credit; changes in circumstances, in particular illness and unemployment; necessary and unexpected expenditures. Welfare reform exacerbates these risks.

Rent arrears are the most common debts, but are generally the tip of the iceberg, with other common debts being energy bills, council tax and water rates.

40

1.2.3 Financial Capability Understanding Financial Capability Financial capability concerns the knowledge, skills, attitudes, motivation and opportunity that people have in connection with managing money. Managing money effectively, i.e. being financially capable, requires:

People to have certain knowledge, for example of the benefits system, or how to open a bank account.

The exercise of certain skills. Financial planning uses a range of skills, mathematical planning, self control, decision making and problem solving.

People to have supportive attitudes i.e. underlying beliefs and values. People’s attitudes may be influenced by parents, their life experiences and those around them. Events such as having children change attitudes towards what spending is necessary or appropriate.

People to be motivated to take action, they need to see the benefit of behaving in a particular way.

People to be supported by their external environment, with access to services, and people around them who encourage/ teach effective financial management.

Financial capability is about much more than effective budgeting, although that is perhaps the task on which all the above factors come together. How Financially Capable is the UK Population? The Money Advice Service’s recent baseline study on financial capability presented a picture of a country that it described as ‘working hard to manage’27. The survey suggested that in the UK 16m adults live in households which have healthy finances, and 14m in households which are focused on the now and not the future. However, social rented tenants will be substantially overrepresented amongst the 10m people living in households ‘on the edge’ and the 9m in ‘urgent need of help’ with managing money.

One quarter of the former group run out of money before the end of the week or month. This group is more likely than the general population to have loans, whether personal, mail order/ catalogue or payday.

44% of the latter group report that they always run out of money before the end of the week or month, 1/3 of this group are falling behind with their commitments.

The survey also contained two further striking statistics:

16% of those surveyed failed to recognise a balance on a bank statement, a litmus test of basic financial knowledge and skills including 25% of the over 55s.

One in six of those under 35 believe the Bank of England base rate is greater than 10%. Social Rented Tenants and Budgeting The Baseline Survey28 does not give direct information about financial capability amongst social rented tenants. However, it did capture information about budgeting amongst people on benefits. The survey reported that 49% of people on benefits regularly draw up a budget (a higher level than for the population as a whole at 46%). However, only 1/3 of those drawing up a budget do so monthly, with week to week budgeting being much more common. This suggests that only 1 in 6 of those on benefits are budgeting in the way that seems to be most appropriate to managing money under Universal Credit.

27

‘The Financial Capability of the UK’ The Money Advice Service, 2013 28

‘The Financial Capability of the UK’ ibid

41

The survey found that of those people in the overall population doing a budget, about 4 out of 5 stick to it at least most of the time, 1 in 5 find it a struggle to do so. Pressures to socialise, meet family related costs and buy gifts were all seen as potential risks to budgets that had been set. One further budgeting statistic from the survey was of particular interest. One of the behaviours that financial capability work seeks to encourage is shopping around. 93% of survey respondents reported shopping around for expensive items. Budgeting Styles of People on Low Incomes People on low incomes tend to have quite specific ways of organising their household budget to ensure that they can cope with the challenges they face. These ways of organising budgets have implications for their preferences relating to financial products. These preferences generally include:

Keeping tight control, often tight physical control of their money.

Knowing how much is in their account, or cash is in their physical possession.

Being able to withdraw and manage small sums of money at any one time.

Being certain that bills can be paid, and that they are not subject to any penalty fees.

Being able to manage money flexibly, transferring/ ‘juggling’ between budget headings in accordance with need.

These preferences have implications for the willingness of tenants to use particular financial products, and the way in which they will use them. Families- Burden and Blessing Families can be both a burden and a blessing in terms of managing finances. The high cost of bringing up children is well understood, and the situation is worsening even for those in work. The Child Poverty Action Group29 suggests that for those in work, once tax credits are taken into account, a full time job on national minimum wage currently only meets 89% of the costs of raising a child for single parents, and 82% for couples. The Baseline Survey throws further light on the potential costs associated with families. 12% of reported unexpected expenditures were associated with health or family issues30. However, families are also a crucial help at times of difficulty. A quarter of respondents to the Baseline Survey incurring a major expense were helped by families and friends, greater than the numbers of people falling back on credit cards or loans/ extended mortgages. It is important for social landlords to remember that:

Many tenants, particularly those who have come from care or other institutional backgrounds, may not have family networks in place to assist them meet such difficulties.

Where people do have family networks, the resources might not be available within those networks to give them extensive support.

29

Hirsch A, Sutton L, Beckhilling J, ‘The Cost of a Child in the 21st Century’ CPAG 2012

30 ‘The Financial Capability of the UK’ The Money Advice Service, 2013

42

Key Points - Financial Capability

Financial capability involves tenants’ knowledge, skills, attitudes and motivation, and their living in an environment which supports them to be financially capable.

Large numbers of social rented tenants may ‘live on the edge’ or be in ‘urgent need of help’ in financial terms.

There is likely to be a lack of understanding of basic financial terms amongst social rented tenants.

Most tenants will budget week to week, something with great significance in the context of monthly payment under Universal Credit.

Tenants’ budgeting styles will generally emphasise control and avoidance of charges, which will have implications for their financial product choices.

Families can provide a buffer for tenants against financial problems.

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1.2.4 Access to/ Use of Financial Products Social rented tenants have lower usage of mainstream financial products than the general population. This section sets out how that pattern repeats across financial products; bank accounts, loans, savings and insurance. This lower usage has common causes across products, reflecting:

Consumer preferences for less formal ways of managing money.

Negative previous experiences of mainstream financial providers.

Disinterest, discouragement, and by financial service providers.

The pricing policies of service providers.

The cost of mainstream provision. Poor access to/ use of financial products is not only a symptom of being on a low income, but also a cause. Social housing tenants will often pay a ‘poverty premium’ because of their lack of access to financial products. It is estimated that due to not paying bills by direct debit, accessing expensive credit, using pay as you go mobiles, and lacking access to the internet within the home, low income families may be £1,280 per year worse off than their financially included counterparts 31. Bank Accounts

Social rented tenants are less likely than other people to have bank accounts- to be ‘unbanked’,

and less likely to make full or effective use of them- to be ‘under banked’.

Substantial effort has been put into increasing the take up of bank accounts over last 10 years and more. Up to date figures on the number of unbanked households are hard to come by, however:

Data from the Treasury suggests that in 2008/09 around 1.14m households, 4% of the UK total lacked a current or basic bank account32.

93% of respondents to the Scottish Household Survey in 2009/10 indicated that they or their partner had a bank account, 4% said they did not, 3% refused to answer33.

Around 4 in 5 of those who remain ‘unbanked’ may be social rented tenants34. Tenants who are ‘unbanked’ or ‘under banked’ may be segmented into three groups:

Group 1 is made up of those who do not have or never use a transactional bank account. Some in this group may never have engaged with the banking system, others may have dropped out of the system, others still who have dormant bank accounts that they never use. Some may have a Post Office Card Account which does not offer transaction facilities.

Group 2 consists of: o Those with transactional accounts who are regularly subject to bank charges, a

significant minority suffer considerable financial losses as a result. Around 6.6m people may be paying around £100 per year in fees because of problems managing their account35.

o Those who still manage their finances almost entirely on a cash basis, often withdrawing the full amount of money deposited in their bank account within the same week. Around 0.95m people across the UK are in this group.

Group 3 consists of people who do not use their bank accounts to the full extent of their functionality.

31

‘The UK Poverty Rip Off: The Poverty Premium 2010’ Save the Children, 2011. 32

‘Households without access to bank accounts 2008-2009.’ Statistical Release HM Treasury 2010 33

Scottish Household Survey 34

Ellison A, Whyley C, Forster R “Realising Banking Inclusion: The achievements and challenges A report to the Financial Inclusion Taskforce” (HMT) August 2010 35

Savell, L ‘A New Approach to Banking; Extending the Use of Jam Jar Accounts’ Social Finance 2011

44

The reasons for tenants remaining unbanked or under banked include:

A simple preference for managing money in cash terms.

A lack of knowledge about products and their rights.

Literacy or numeracy problems, or difficulties communicating in English.

A lack of, or belief that they lack, identification acceptable to the bank.

Previous experience with being hit by bank charges, often associated with the exceeding of overdraft limits because of direct debits.

Lack of banking services within a community, compounded by charges to withdraw cash.

The leaving of accounts dormant to avoid being chased for money that is owed.

Refusal by some banks to provide a service to people who are going through bankruptcy.

Negative experiences of bank attitudes when engaging with them, or a fear of such experience ‘banks aren’t for the likes of us’.

Obstruction by bank staff of applications for their Basic Bank Accounts, often connected with incorrect and inconsistent application at the frontline of a bank’s own rules on opening an account, in particular in relation to rules on ID.

A reluctance from some banks to push the provision of appropriate bank accounts, based on their concerns about the challenges and costs involved in dealing with low income customers, and a poor understanding of the market.

Unbanked tenants of younger working age appear more likely to have never been banked due to a lack of a family history of engaging with banks, or living in an unbanked area. Unbanked tenants of older working age often appear to have experienced intermittent employment, and to have moved away from the banking system as a consequence of resultant negative experiences36. These negative experiences mean that some tenants will actively resist the idea of having a bank account, or using its full functionality. Furthermore, even amongst tenants who are happy to use Direct Debit, generally seen as a key element of bank account functionality, there may be a preference to use Direct Debits on a weekly basis. Borrowing Social rented tenants are less likely to access mainstream credit than the general population, and there is evidence that access to credit is becoming more difficult:

In 2011, 36% of low to middle income households and 37% of benefit reliant households, were experiencing constraint on the ability to borrow money.

47% and 69% respectively were finding it harder to borrow money than the previous year37 Lack of access to credit can be a particularly severe problem for tenants, who will generally have less ability to finance expenditures from savings, have lower disposable income ‘buffers’ to cope with unexpected expenditures, and less certain future incomes that are unable to support longer term saving and financial planning. ‘Sub Prime’ or Non Mainstream Credit Those excluded from the mainstream credit market may borrow from a number of ‘sub-prime sources’, more expensive than the mainstream credit market, and operating in a very different way. These may include home credit companies, pay day loans, catalogues, informal, and, at worst, illegal money lenders. Home Credit Over 2.3 million people in the UK borrow from the home credit industry, which includes providers such as the Provident. According to their website, a £500 loan from Provident Local repaid over 32 weeks will be subject to interest at 399% APR38 39.

36

‘Welfare Reform and Financial Inclusion in Scotland’ Epic Briefing No. 16 Poverty Alliance 2013 37

Whittaker M ‘Squeezed Britain the Annual Audit of Low to Middle Income Households’ Resolution Foundation 2012 38

Alexander N: ‘Credit Where Credit’s Due’ National Housing Federation, 2007. 39

www.providentpersonalcredit.com

45

Typical home credit customers in the past included people of working age who aren’t working, younger women, families with children, and social renters40. Recent evidence suggests that the Provident has been focusing on customers slightly better off than their more traditional group41. This means that traditional Provident customers may be being forced to seek credit from even further outside the mainstream, perhaps from the illegal money lending sector. Pay Day Loans and Pawnbroking There has been substantial media focus on the growth of the market for pay day loans. The Office of Fair Trading’s recent report into the industry estimated that, in 2011/12, 8.2m payday loans were taken out, to the value of £2.2bn42. There may be upwards of 2.4m customers for the industry per year. It is estimated that pawnbrokers in the UK give out £851m per year in the UK43. The practices of the industry have been widely criticised. Problems highlighted in the OFT report and in more recent work for Glasgow City Council suggest that:

Companies have been guilty of telephone and text harassment of debtors.

There has been widespread misuse of Continuous Payment Authority (CPA), which allow companies to take money from accounts whenever they think they are owed.

Some borrowers have become trapped in a cycle of roll over loans which they only just manage to clear each month, or which they ultimately cannot clear.

Loan affordability assessment is often poor.

The speed of turn around of loans means that customers can access a series of loans, totalling beyond what they can repay, within a short period of time.

Companies do not always give customers adequate information about loans and actively encourage roll over as this is where greater profits are made.

There is a lack of professionalism within some operators.

Some companies regularly break the provisions of the Consumer Credit Act. The Glasgow City Council Research suggests that the market for payday loans is different from that for Home Credit, particularly the market for on line payday lending, and is focused more on people who are less vulnerable and on slightly higher incomes, and very much more likely to be in employment. The OFT has also been taking action against payday lenders, requiring them to respond individually to particular criticisms raised, leading to some players leaving the market. Use of payday loans may not be problematic for some tenants, for whom providers meet a specific need, and some of the providers with the worst practices may be getting driven out of the market. However, for between 25-35% of customers of pay day loan companies, generally those with poor financial capability and/ or poor financial resilience, these loans may be a source of considerable problems44. Reasons for Use of Expensive Credit Tenants may use expensive credit because:

They may simply lack alternatives. o Banks do not offer loans as small as the size tenants are looking for. Tenants may

not have an overdraft available to them, or be at the end of their overdraft. o There may not be a credit union of a CDFI near them, and credit unions (though not

CDFIs) will usually require their customers to save before borrowing.

These forms of credit offer rapid or very rapid access to loans. Wonga can send a loan to a borrowers’ account within 5 minutes of it being approved.

Although the APR charged on these loans may appear to be high, weekly payments may appear much more affordable on the shorter term budgeting horizons of borrowers.

40

‘The Home Credit Market. A Detailed Analysis of Target Group Index Data,’ BRMB 2006. 41

Alexander N ibid. 42

George S, ‘Payday Lending Compliance Review Final Report’ OFT 2013. 43

Alexander N ‘Payday Lending Sounding Board: A Report into the Non Standard Lending Evidence Hearings’ Glasgow City Council 2013 44

Alexander N, ibid.

46

They are able to miss some payments. Home Credit companies price their loans to reflect their expectation that their customers will frequently miss payments.

There may be family traditions of using home credit, and home credit companies have an effective face to face marketing and customer engagement model, often involving women working directly with other women.

Savings Tenants are less likely to save than the general population, which is itself not saving in large amounts:

Two thirds of households in the general population hold savings equivalent to less than one month’s income.

53% of these households would like to be able to save £10 per month, but find themselves unable to do so.

84% of households reliant on benefits have savings of less than £1,500, 59% hold savings equivalent to less than one month’s income45.

Of those who do save, people being paid monthly are more likely to save using a formal financial product such as an ISA, those paid weekly are more likely to save money in a cash box46. The consequences of not being able to save are:

Reduced resilience to financial shocks such as unexpected costs, or drops in income (including drops in income as a result of welfare reform).

Increased reliance on credit as a mechanism to pay for more expensive items. The main reasons for people not saving involve a combination of lower incomes leaving little cash to spare, and other pressing calls on expenditure. People with young families in particular tend to look first to pay off debts rather than save. Insurance Levels of home contents insurance amongst their tenants remain a concern to social landlords. The Scottish Household Survey has found that 47% of social rented tenants did not have home contents insurance, in comparison to 3% of those owning their own home47. Barriers to take up include:

Other pressing household expenditures. Even for those tenants with policies, this may mean payments can lapse.

A lack of understanding of products that are available.

A lack of trust in the insurance industry, 38% of respondents to the Money Advice Service Baseline Survey did not trust the industry48.

The lack of immediate benefit from the product, unless they are required to make a claim tenants may view money spent on insurance as wasted.

Even when entitled to make a claim, many people do not do so, for reasons of inertia, a wish to avoid hassle and being disbelieved, ‘excess’ charges, or a fear of losing a no claims bonus/ seeing premiums rise.

45

Whittaker M ‘Squeezed Britain the Annual Audit of Low to Middle Income Households’ Resolution Foundation 2012 46

‘The Financial Capability of the UK’ The Money Advice Service, 2013 47

Data is three year average 2006-2008 accessed at http://www.poverty.org.uk/s74/index.shtml 48

‘The Financial Capability of the UK’ ibid

47

Key Points- Financial Products

A small but significant number of tenants will lack bank accounts. Others will not use the accounts they have, or only use them to a limited extent.

Some of those who do not have accounts may be actively resistant to the idea of having and using one. Others with accounts may be resistant to the use of direct debit as a payment mechanism.

People do not have/ make full use of accounts for a variety of reasons; culture and belief that banks are not designed for people like them; past negative experience with banks, including of encountering penalty charges; failure of banks to properly promote/ support access to accounts, particularly at the front line; and lack of understanding of the products banks offer.

Tenants may often rely on borrowing from non mainstream, ‘sub prime’ sources such as home credit and payday loan providers and pawnbrokers. Many loans are for small amounts.

Affordability of such loans is generally viewed in the context of the affordability of weekly payments not the APR charged.

Providers may be the only available option for a tenant, and may be valued for the quick access to cash they provide, and the ability to miss payments on occasion.

A majority of social rented tenants do not have significant savings, largely because of the pressure on household budgets. This can leave tenants reliant on borrowing to afford more expensive purchases, and more vulnerable to financial shocks.

Pressure on budgets and cultural issues also mean that many tenants do not have home contents insurance, leaving them vulnerable to the cost of fire, theft and flood.

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1.2.5 Pressure Points: Fuel Poverty, Food Poverty and the Cost of Setting Up Home This section focuses on the challenges that tenants may face in meeting the cost of two household essentials: household energy bills, and household food bills; and in setting up home. Social landlords should understand the particular risks associated with these pressure points:

When looking at household budgets, and more particularly at debts and arrears issues, fuel and food are considered as essential items of expenditure alongside rent, i.e. as items that the household can legitimately prioritise.

Beyond that, a tenant faced with the choice of paying rent, staying warm, and feeding themselves and their family will not generally prioritise rent. In the interviews for this guide, a number of landlords reported an increasing number of tenants finding themselves in this situation.

Tenants facing challenges in meeting the costs of setting up home are more vulnerable to tenancy failure, and more likely to turn to expensive sources of credit.

Fuel Poverty The Scottish Government works with a specific definition of fuel poverty. Households are defined as being in fuel poverty when, to ensure that their home is heated to a satisfactory standard, they have to pay 10% or more of their income, including Housing Benefit. Extreme fuel poverty is defined as being when a household must use up to 20% of its income for that purpose. There are generally agreed to be three factors that determine whether or not households are in fuel poverty:

Their level of income.

The energy efficiency of their home.

The cost of energy. Given the focus of many energy advice services, a fourth factor should be added. Household behaviour can have at least some impact on whether or not the household is in fuel poverty. Households may exacerbate the high cost of energy within their budget by paying with prepayment cards/ key meters, more expensive per unit used than paying by direct debit, but often perceived by low income customers as offering a greater level over bills and usage. Levels of Fuel Poverty In 2002 fuel poverty fell to a low of 13% of all Scottish households. By 2009 this had risen to 33%, since when it has fluctuated. Based on October 2011 prices, the most recent official calculations of fuel poverty in Scotland suggest that 29% of the population are in fuel poverty, 8% are in extreme fuel poverty49. Figures relating to households in the social rented sector, suggest that:

33% of local authority tenants are in fuel poverty.

27% of housing association tenants are in fuel poverty50. Reasons for the Rise in Fuel Poverty These rises in fuel poverty have occurred during periods of:

Major investment in housing stock which will have impacted on the thermal efficiency of that stock, and the creation of newer more thermally efficient stock.

At least across the start of the period, substantial falls in the number of households living in poverty.

49

‘Scottish Fuel Poverty Forum: Review of the Scottish Government’s Fuel Poverty Strategy’ Scottish Government, 2012 50

‘Scottish Fuel Poverty Forum: Review of the Scottish Government’s Fuel Poverty Strategy’ ibid

49

The reason for the rise in fuel poverty lies with changes to energy prices over the last few years. From January 2006 to March 2013.

Gas prices rose by 106%.

Electricity prices rose by 53%.

Dual fuel prices rose by 88%51. Each of the major energy companies announced further price rises in Autumn/ Winter 2013. For every 5% increase in energy prices, a further 2% of Scottish households are pushed into poverty52. Consequences of Fuel Poverty Recent survey data highlights the consequences for households of rising energy prices and fuel poverty53:

1 in 3 households are rationing their consumption of fuel.

1 in 10 households have defaulted on their energy bills.

Almost 1 in 4 households have been rationing food to pay their energy bills.

1 in 3 households have begun to get into debt to pay their energy bills. Food Poverty The issue of food poverty has risen up rapidly the agenda in the UK, partly associated with debate about the increasing number of food banks that have been set up and the demand for support that has generated such a response. There is no single definition of food poverty that is widely accepted, and there are perhaps two types of food poverty.

‘Chronic’ food poverty refers to people being forced to eat what they can afford and are able to prepare, rather than necessarily what is nutritious.

‘Acute’ food poverty refers to people in crisis, who lack the immediate means to feed their family. Food banks often focus on this type of poverty.

Levels of Food Poverty Given the lack of accepted definitions of food poverty, there are also no agreed measures of the number of people facing this situation. It has been suggested that around 500,000 households in the UK are forced to rely on some form of food aid; food banks, food parcels etc. every year54. This figure gives a useful snapshot of the extent of demand, but given that it is in part dependent on the level of ‘food aid’ available in the UK it is likely to be an underestimate of the level of food poverty that exists. For similar reasons, the use of figures to suggest that the growth of foodbanks is just the result of an explosive growth in food poverty should be treated with caution. There appears to have been a substantial recent increase in people in food poverty, but the creation of foodbanks is also making the food poverty that already existed more visible. What is clear, is that that social rented tenants will be overrepresented amongst the significant proportion of the UK population that is struggling to put food on the table.

51

‘Quarterly Energy Prices March 2013’ DECC, 2013. 52

‘Progress Report on the Scottish Fuel Poverty Statement 2002’ Scottish Government 2010 53

Onepoll Survey for Ovo Energy, quoted in ‘Greenest Government Eve: A Third of British Families Ration Fuel’ Observer, December 3

rd 2012.

54 Walking the Breadline The Scandal of Food Poverty in 21

st Century Britain’ Oxfam and Church Action on Poverty

2013.

50

Causes and Consequences of Food Poverty The Trussell Trust, the organisation supporting foodbanks across the UK, record the reasons why people referred to them have been referred, which give a flavour of the causes of food crisis:

1 in 3 referrals are as a result of a delay in a household receiving benefits due.

15% of referrals are as a result of benefits being cut and stopped. These figures should also be seen in the context of the Department of Work and Pensions underpaying benefits to the tune of £1.3bn in 2011/ 1255. Both chronic and acute food poverty are influenced by the cost of food, which has been rising, alongside and associated with the cost of fuel. The cost of basic foodstuffs is now 30% higher than it was 5 years ago56. The consequences of such changes can be seen in the purchasing patterns of low income families. Low income households on average purchase 2.7 portions of fruit and vegetables every day, the average household purchase is 4 portions57. Issues around attitudes, knowledge and motivation may remain for some, but the cost of food is the main factor influencing this pattern of consumption. The discussion of Universal Credit in section 2, and of the risk of worsening problems with the benefit system in this section both suggest that food poverty, and more particularly food crisis, will become more prevalent over the next few years. Financial Challenges Setting Up Home Households face a number of specific costs when they are setting up home. They must source:

Furniture.

Carpets where these are absent or in unacceptable condition.

Basic kitchen equipment; crockery, utensils etc.

White goods; cooker, fridge, freezer, washing machine.

Electrical goods. Households may also face removal costs as they go from one place to another, and at some point may wish to decorate their home to a reasonable standard/ their own taste. The costs involved in meeting these needs and aspirations may be significant, even where households seek out second hand goods, or only look for the cheapest goods. Households are likely to have to borrow to finance their purchases, with considerable risk of debt and other problems if they cannot access affordable credit. Social rented tenants may face a particular struggle to equip and set up their home when they:

Lack access to financial and in kind support (in the form of furniture etc) from their families.

Are leaving some form of institution or supported accommodation and own very few of the goods identified.

Have been forced to leave their previous home quickly (for example because of domestic violence) and have not been able to bring much with them.

Have poor financial capability, or are in debt. The Community Care Grant element of the Scottish Welfare Fund is designed to support many of those who are most vulnerable to meet the costs they face in setting up home. However, tenants’ experience suggests that, even where it is used to pay for second hand goods, it is often not adequate to meet all the costs involved.

55

‘Fraud and Error in the Benefit System: Preliminary 2012/13 Estimates (Great Britain)’ DWP, 2013 56

‘Walking the Breadline The Scandal of Food Poverty in 21st Century Britain’ Oxfam and Church Action on Poverty,

2013. 57

Walking the Breadline The Scandal of Food Poverty in 21st Century Britain’ ibid

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Many social rented tenants therefore turn to a variety of high street providers who focus on serving low income customers to meet their needs in setting up home. The size of this part of the market is increasing; Brighthouse, the market leader, reported a turnover of £266m in 201258. The interest rates charged by such providers are often not particularly high in comparison to those offered through home credit for example, and weekly payments may appear to be affordable. However:

Loans are often repaid over a longer term, raising the overall cost, often to more than twice the original face value of the goods.

High charges are levied when payments are missed.

The base price of goods is generally higher than from other high street or on line sources, one major retailer in the field being described as charging higher prices than Harrods59.

There are concerns about the practices of some such retailers in seeking to repossess goods.

The particular significance for social landlords of the challenges facing tenants in setting up home, lies in their long term ability to pay their rent, and perhaps more significantly in the risk posed to tenancy sustainment if a new tenant cannot create a home and settle in it.

Key Points - Paying for Fuel, Food and Setting Up Home Three out of ten people in Scotland are living in fuel poverty, a slightly higher proportion of

people renting from local authorities, and a slightly lower proportion of people renting from housing associations.

The risk of being in fuel poverty is determined by income levels, the standard of home insulation, fuel consumption behaviour and the cost of energy.

The main recent driver of fuel poverty has been the substantial increases in energy costs.

There are increasing numbers of people in food crisis, unable to meet immediate needs for food, and increasing number of people in chronic food poverty, unable to afford to feed themselves properly.

Food poverty is being driven by increases in the cost of food, and problems with the benefit system, including the increasing use of sanctions.

Setting up home is an expensive time for tenants.

Tenants coming from an institutional background or who for whatever reason cannot access support from families are particularly vulnerable.

Use of high street consumer goods retailers targeting the low income market can be an expensive way of acquiring poor quality goods.

58

Alexander N ‘Payday Lending Sounding Board: A Report into the Non Standard Lending Evidence Hearings’ Glasgow City Council 2013 59

http://en.wikipedia.org/wiki/BrightHouse_%28retailer%29 referencing "The peril of easy credit at Christmas", The Sun, Dec. 7, 2009

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1.2.6 Digital Inclusion Digital inclusion concerns:

Having access to the internet, particularly within the home.

Having the motivation to make full use of the internet.

Have the skills and knowledge required to make full use of the internet. With the Government looking to move towards increased online applications for benefit, digital inclusion will be an ever more important issue for social rented tenants. Survey data suggests that of people who are digitally excluded60:

38% identify access as their main issue.

34% identify motivation as their main issue.

20% identify skills as their main issue. Social housing tenants are less likely to have access to the internet at home. Only 40% of Scottish households with incomes of below £17,500 (most social rented tenants will fall into this income bracket) have fixed broadband in their home61. There are also substantial differences between different Scottish cities. Only 50% of Glasgow residents have fixed broadband, compared to a Scottish average of 68%, and figures for Dundee and Edinburgh of 71% and 88% respectively62. There remain problems accessing the internet, both mobile and broadband, for tenants living in rural Scotland. There has been real growth in the use of mobile technology through tablets and smart phones etc, 78% of internet users in Scotland say that some form of mobile device is their most important way of accessing the internet63. Substantial differences in levels of ownership between age groups of smart phones mean that they are not necessarily the answer to digital exclusion. The evidence suggests that issues around skills, confidence and motivation may be preventing people from making full use of the internet:

35% of Scots do not shop online64.

Only 40% prefer to use e mail or website to engage with government processes.

People on lower incomes are not only less likely to use the internet, but are also less likely to use the internet for a wide range of tasks65.

There is a cost to digital exclusion. The average saving to a household from using broadband to access goods and services online may be as high as £70 per month66.

60

Research from Freshminds quoted in ‘Does the Internet Improve Lives’ Online Centres, 2009 61

White, D ‘Across the Divide. Tackling Digital Exclusion in Glasgow’ Carnegie Trust 2013. 62

‘Communications Market Report’ Ofcom, 2012 63

Ofcom Online Survey 2013. 64

‘Technology Tracker Research’, Quarter 1 2013, Ofcom. 65

‘Adults Media Use and Attitudes Report’, Ofcom 2013. 66

SWQ Consulting,’ Broadband in the Home: An Analysis of the Financial Costs and Benefits, Final Report to the Post Office,’ Post Office 2010

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Useful Web Resources - Understanding the Issues

Department for Work and Pensions https://www.gov.uk/government/topics/welfare Hub for DWP information on welfare reform. Latest news, information about policy, information for both professionals and claimants, the latter potentially valuable as summaries for professionals. https://www.gov.uk/government/organisations/department-for-work-pensions/about/statistics Benefits statistics hub within the DWP. https://www.gov.uk/government/organisations/department-for-work-pensions/about/statistics#statistical-series Hub for key statistical series within DWP including Employment and Support Allowance reports. http://83.244.183.180/100pc/tabtool.html Place to find out statistics for numbers of people claiming key benefits in your area and in Scotland as a whole. https://www.gov.uk/government/organisations/department-for-work-pensions/about/statistics#stat-xplore Housing Benefit statistics now, Universal Credit and other statistics in the future. https://www.gov.uk/government/collections/income-related-benefits-estimates-of-take-up--2 Latest estimates of take up of means tested benefits. Scottish Government http://www.scotland.gov.uk/Topics/People/welfarereform Hub for Scottish Government response to welfare reform. Contains analysis of the impact of reforms, links to other sites, details on the Scottish Government’s practical response to welfare reform and the Social Welfare Fund, and places that response in the context of the Scottish Government’s approach to tackling poverty. Broader approach to tackling poverty found here: http://www.scotland.gov.uk/Topics/People/welfarereform/tacklingpovertyinscotland http://www.scotland.gov.uk/Topics/Built-Environment/Housing/warmhomes/fuelpoverty Information about what the Scottish Government is doing to tackle fuel poverty. http://www.scotland.gov.uk/Topics/Statistics/16002 Scottish Household Survey. http://www.scotland.gov.uk/Resource/Doc/304557/0103554.pdf Latest paper on financial capability in Scotland. Housing Organisations

http://www.sfha.co.uk/sfha/policy/welfare-reform

http://www.cih.org/welfarereform

http://www.housing.org.uk/policy/welfare-reform Information from the SFHA, Chartered Institute of Housing and National Housing Federation about welfare reform. Latest news on changes, campaigning and policy work, impact research, links, good practice advice and useful tools to help landlords respond. Money Advice Service https://www.moneyadviceservice.org.uk/en and https://www.moneyadviceservice.org.uk/en/static/the-financial-capability-of-the-uk Source of information about financial products and household financial management in the UK, potentially useful to direct more capable tenants towards.

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Other Useful Sites http://www.cas.org.uk/publications and http://www.citizensadvice.org.uk/index/policy.htm Policy research and analysis from Citizens Advice, reflecting on key issues in welfare reform and financial inclusion, and often building on the experience of CABx in delivering advice. http://www.cpag.org.uk/scotland Accurate, up to date briefings and research on welfare reform and other benefit issues. http://www.infohub.moneyadvicetrust.org. Hub for latest research into debt, financial inclusion and advice issues provided by Money Advice Trust. http://www.resolutionfoundation.org Series of publications on what’s happening to low to middle income families in Britain from Resolution Foundation think tank. http://www.trusselltrust.org/ Information about food poverty, and about your local foodbank.

3rd Floor, Sutherland House, 149 St Vincent Street, Glasgow G2 5NWNovember 2013