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19 December 2014

Direct Payments report reveals threat to housing association finances.

The DWP have released the latest findings from their Direct Payment Demonstration Projects (DPDP). The independent findings reveal that the direct payments in the DPDP did have a financial impact on landlords with a total of £1.9m of rent owed over the 18 month pilot period. The report also pointed out that for some landlords the situation represented a 100% or more increase in their arrears rate, and that financial surpluses may be eroded, with consequences for housing associations’ capacity to build. The impact of late/underpayment on cash flow could pose significant problems for small landlords. The report also confirmed that landlords will only be able to closely monitor rent accounts if they know which of their tenants are in receipt of Universal Credit. This has been a concern of CHC and members for some time. CHC will continue to work with the DWP around issues such as data sharing and will continue to lobby for a fairer welfare system, including offering tenants choice about direct payment.

Other key quotes from the report include:

"Overall, tenants who went onto direct payment in the DPDP paid 95.5% of all the rent owed, compared with a comparator sample (not on direct payment) who paid 99.1% of rent owed (a difference of 3.6 percentage points). However, this masks significant variation over time.

"The average payment rate immediately following migration to direct payment was just 67% – an arrears rate of 33% – but by tenants’ 18th direct payment it had risen to 99%.

"Direct payment in the DPDP did, therefore, have a financial impact on landlords (a total of £1.9m of rent owed was not paid over the 18 month period) but much of this burden was borne in the first few months following migration."

"Further analysis strongly suggests that the early arrears spike was not driven primarily by factors specific to the DPDP – e.g. the infancy of the policy and experimental nature of the DPDP programme – but is a pattern likely to repeat unless mitigating action is taken.

"The ‘spike’ may be less pronounced going forward, reflecting the influence DPDP has had on UC design, but focused intervention and close monitoring of rent accounts may be needed.

"Financial surpluses may be eroded, with consequences for housing associations’ capacity to build, and the impact of late/underpayment on cash flow could pose significant problems for small landlords.

"Larger landlords, meanwhile, face the prospect of a significant reduction in income once the few additional percentage points arrears are scaled up to tens of thousands of tenants. Large local authority landlords may find this particularly difficult to accommodate in the context of austerity measures and public sector funding cuts."

The report highlights "the benefit of a phased introduction of direct payment so that financial risk can be spread over time and the need for mitigating action during the transition to direct payment".

The report states: "All Project Areas highlighted the importance of allocating additional resource to the programme with all noting that it was relatively resource intensive. Most participating stakeholders emphasised that the effort, focus, and resource associated with the DPDP would be difficult to maintain", though it clarifies that these were pilot projects, so were always going to be relatively resource heavy until participants know what they are doing.

The full report can be found at: https://www.gov.uk/government/publications/direct-payment-demonstration-projects-final-reports