Universal Credit takes 7 weeks to make first payment

Landlords are caught in a difficult position as the transition to Universal Credit proves to be challenging to all sides. The concern is that the six week assessment period is causing an unnecessary delay in getting proper rent payment to the owners of the housing unit. This follows a single week wait prior to the entitlement.

For a private tenancy to work, payments must be received on-time every month. Those who accept tenants on Universal Credit are finding that 89% of these newly accepted occupants are in arrears.

It is a stunning development that echoes the concerns of many opponents to this transition. Rent payments are now sent directly to private citizens as a part of a consolidated social welfare payout. The goal was efficiency, but the result is proving to be far from efficient.

Initially the main complaint to the change was a concern that many people who struggled to maintain a proper budget would end up squandering the funds prior to paying the landlord. Opponents thought that the experiment would be a failure, and they were quick to point out delinquencies during the initial testing. Most aid will be delivered through Universal Credit by the final phase in date of October 2017.

There are three consequences that are reportedly being encountered. None are favourable.

1. Landlords are getting squeezed as they must make their payments even though the rent is not being paid promptly.
2. Rent payments are being paid directly once tenants exceed eight weeks in arrears. This reverses the initial goal of consolidating all payments to recipients in an attempt to be more efficient. Alternative Payment Arrangements have become necessary to prevent more extreme arrears, and this is costing the government more money to implement.
3. Desperate households are turning to high street lenders to get by while waiting for funds to be approved and delivered. A survey reported that 95% of ‘claimants “frequently” or “sometimes” reported hardship while waiting for their first payment.’

This last outcome is causing the greatest harm, since it sends the budget down a sort of death spiral. No reasonable person can afford to pay debt with a 100% interest rate. Many high street lenders routinely charge well over 10 times that amount. It creates an inescapable situation where borrowers are doomed to insolvency.

Once someone falls into deep arrears with a loan shark they cannot reasonably be expected to catch up without some extraordinary stream of new income. This rarely occurs. So many of these loan applicants have multiple loans at high rates of interest already, and they are proportionately less likely to repay these loans as they take out the next one.

Proponents of welfare reform have rightfully argued that many of these individuals and families were already experiencing difficulty making their rent payments prior to being accepted for Universal Credit. The sector average is a 31% delinquency rate.

The primary reason for gaining approval for the scheme is a material change in someone’s circumstances that prevents them from gaining a proper income. The employment problem is still unresolved, but at least the people are finding proper housing. That is the requirement if someone is to return to the work force as a regular worker.

What is being done to remedy the problem? No solution has yet been rendered nor is one clear. People are still found sleeping rough. Tenants are still delinquent. Landlords are still seeking the prompt payment of rent that is required by the tenancy agreements. This is one problem that will surely take time and more change.