The Renters Reform Bill has been making its way through the House of Commons since May of this year. The bill includes many long-awaited reforms, such as eliminating ‘no fault’ section 21 evictions, and making it illegal for landlords to discriminate against people who receive benefits or who have children. But there’s one low cost policy, popular with tenants, homelessness advocates and private landlords, that is missing from the bill: allowing people who receive Universal Credit (UC) to transfer their housing benefit directly to their landlord.
Currently, in England and Wales, the default is that a person receiving UC gets their housing benefit as part of a monthly lump sum payment at the end of each month. They are then expected to pay their rent from this sum. In Scotland, on the other hand, UC recipients are offered the choice to have the housing portion of their UC payment transferred directly to their landlord. In Northern Ireland, the housing portion of UC payment is transferred directly to the landlord by default.
Why is this a good policy? Can’t people receiving UC just set up a standing order to their landlord? While this sounds simple in theory, standing orders and direct debits often aren’t a good idea for people struggling with their finances: fees associated with overdrawing an account can add up, especially for the most vulnerable among us.The Financial Conduct Authority found that average unarranged overdraft charges were more than 3 times higher for the most financially deprived compared to the least deprived. While not paying your rent will put you in arrears, you won’t be charged a late fee or accrue interest like you do on many other forms of debt. So setting up a standing order can end up being an expensive option for those receiving UC. Giving people the option of having their housing benefit payment transferred directly from DWP to their landlord (instead of coming into their own accounts) means UC recipients can automatically pay their rent without the risk of overdraft.
The policy is also popular with landlords. Landlords have expressed that they were willing to accept lower market rent under the legacy housing benefit system when the amount was directly transferred, as it served as a form of rent guarantee. We found support for this in our research on encouraging landlords to let to people receiving UC: providing a below market ‘rent guarantee’ was as effective as offering the landlord £1000 cash upfront in encouraging them to let to a tenant receiving UC. At present, several local authority housing teams offer rent guarantees as part of their private rented sector incentive scheme. A policy change in how the housing benefit portion of UC is paid out could allow these authorities to use these funds more effectively (for example, by topping up the amount paid to the landlord so it reaches the 30th percentile of the rental market).
Importantly, the policy is popular with tenants. An evaluation of the ‘Scottish choices’ programme, where tenants can opt to have the payment transferred directly, found that tenants reported the programme helped to simplify their money management and reduced their worries about their housing and money. This sentiment was echoed in an interview I conducted with a person receiving UC in Wigan, who made the analogy with paying taxes. He explained that paying taxes are important, there are consequences to you not paying them, and so the government takes them directly out of your salary to ensure they’re paid on time. Why couldn’t the government let people like him do that with their rent?
This interviewee was thinking like a behavioural scientist. Behavioural science is all about preserving choice while designing systems that will support people to make the best choices for themselves. It has also found that defaults are an incredibly powerful tool, and that they may be even more important for those struggling financially.
There is currently an option for UC recipients in England to get their housing benefit transferred directly to their landlord by applying to have an ‘Alternative Payment Arrangement’. However, applications are considered on a case-by-case basis with strict eligibility criteria, and the direct transfer to the landlord is only temporary. A simple, low-cost solution would be to approve all ‘Alternative Payment Arrangements’ applications in England without any form of assessment. But we at BIT think the policy should go further by making direct transfers to landlords the default option for UC recipients, as is the case in Northern Ireland. People receiving UC should be able to opt out, but given the power of defaults, we think this change will not only encourage more landlords to let to people receiving UC, but will also prevent a build up of rent arrears that could lead to financial distress and the threat of eviction.