Money problems do not have to lead to homelessness

Katija Dew

Project aims to safeguard rent payments for vulnerable tenants

On International Credit Union Day (Thursday 18^th October), Katija Dew, Programme Director for Financial Inclusion at the Wales Co-operative Centre, and Welsh Government Financial Inclusion Champion for Wales, looks at the potential effect of Universal Credit on vulnerable tenants and how a new project could utilise credit unions to safeguard rent payments.

With just under a year to go before Universal Credit is introduced it is fitting to use International Credit Union Day to look at some of the effects that financial exclusion has on citizens in Wales.  It is an opportunity to look at how schemes advocating responsible financial products can help safeguard tenants and vulnerable people in our society.

Universal Credit is due to start rolling out in October 2013 and it will have a huge impact on those  claiming benefits. The new system will replace the majority of individual payments including tax credits, income support, jobseekers allowance, housing benefits,  and some sickness or disability benefits. The approach is intended to simplify an existing system that most people agree is extremely complicated and its planned application raises issues around inclusion and vulnerability.

The payment will be made on a monthly basis to one person, irrespective of the number of people within the household that claim together. That recipient is then responsible for ensuring that the money paid for that month is used for family expenditure such as rent, fuel and heating, food and clothing.

Whilst this approach appears logical for the majority of households, there are a number of issues that could mean that benefits are not used to their best effect, so effectively reducing household income even further. ‘Financially excluded’ tenants, who may not be able to open a bank account or who may fear bank charges and manage by using cash find themselves paying more for day to day living. Those who don’t know how to manage their money well, or lack the financial education to prioritise debt effectively sometimes opt to use their benefits to pay debts on a perceived need basis  – for instance paying off a short term loan as the company is literally on the doorstep. As an example of other difficulties people may face; those living in an abusive relationship or other dependency problems may find that the family does not see the money they are supposed to live on.

Beyond the change to the method of benefit payment, there are very significant changes to eligibility for benefits and the level at which they are paid. There are already an increasing number of households who find that their benefits will not cover their rent. This poses a real risk of homelessness and hardship. When Universal Credit is introduced most people who have their rent paid directly by benefits will have to manage the payments themselves. If the recipients have debts, problems with using bank accounts or don’t understand how to manage their money well, this means that the rent may not be paid.

At the Wales Co-operative Centre, we are working to support those most at risk of eviction and homelessness due to problems with managing their money.

Our Tackling Homelessness through Financial Inclusion (THFI) project seeks to support vulnerable tenants through the administration of their benefit through a ‘Credit Union Rent Account’. The project has been running across Wales since October 2011, and is funded by the Oak Foundation and Welsh Government. Its aim is to develop a credit union rent account model where none exists within a local authority, and to promote the scheme to private landlords and tenants to maximise take up.

The Credit Union Rent Account process is simple – the tenant joins a credit union and instructs the Local Authority to pay the benefit into a rent account. The benefit is ring-fenced and paid to the landlord (who pays a small administration fee to the Credit Union). This helps the tenant budget and by becoming a member of the Credit Union they get access to the other products a Credit Union can offer, such as low-cost loans and savings accounts. The tenant still retains control of their benefit. The landlord benefits from a degree of assurance that housing benefit is being used to pay rent.

Bristol Credit Union has provided a rent account scheme since 2008. Bristol Credit Union Chief Executive, James Berry comments, “Our members are fully in control of their account, and landlords like the fact that they are notified of any changes a member makes to the account, in advance to the change taking place. Tenants also particularly appreciate having rent ring-fenced in a jam-jar account as it means they have less of a worry about making sure the rent is paid.” Welsh Credit Unions are working hard to develop ideas further to suit their localised needs. For instance Neath Port Talbot Credit Union has provided a rent account model for over two years. By becoming a member of the Credit Union, over 76% of tenants on this scheme now have loans with Neath Port Talbot Credit Union where otherwise they may approached a high interest loan provider.

There are clear benefits to introducing vulnerable benefit claimants to a credit union now, prior to the introduction of Universal Credit. Credit unions are developing budgeting accounts, known as ‘jam jar’ accounts, to help support vulnerable people to budget for priority debt – ring-fencing priority payments such as rent. This will help vulnerable people, who will receive housing benefit within a larger single payment, to prioritise the rent going forward. Action now to support innovative models such as the credit union rent account will help mitigate against the impact of Welfare Benefit Reform, but this action is needed quickly so that people are prepared for the changes.

Vulnerable people need not be financially excluded in Wales. With co-operation and communication between accountable financial institutions, local government and other stakeholders  we can ensure that our vulnerable and at risk citizens have the means to access responsible financial services and have the security of a home and food for their families.